- Nil rate band for IHT to be frozen until 2030
- IHT allowance freeze lasting a decade could cost families over £200,000
- Business Property Relief and Agricultural Relief stays for first £1 million of estate assets before being slashed to 50%
- Relief for private investors holding AIM shares cut to 50%
- Death tax grab to bring in over £2.2 billion by 2030
“Nothing is certain except death and taxes, and now the Budget has put up death taxes too”, says Charlene Young, pensions and savings expert at AJ Bell.
“Rachel Reeves has frozen the inheritance tax (IHT) thresholds and restricted the exemptions available for wealthier estates containing business and land assets, in measures that are forecast to bring in over £2.2 bn by 2030.
“For those families concerned about how this will impact them it’s well worth considering speaking to a financial adviser. There are various estate planning options available to help protect your estate from the taxman and allow you to pass on more to your loved ones.
Nil rate bands to be frozen
“The amount people can pass on free of IHT will continue to be frozen for two more years until 2030.
“Everyone can pass on up to £325,000 before any IHT is due, although this IHT nil rate band has been at this level since 2009. This astonishing freeze – which will last over two decades - is partially offset by the 2017 introduction of the residence nil rate band (RNRB), which gives a boost of up to £350,000 of tax-free assets per couple if they leave a property to their direct descendant(s).
“Had both bands been uprated with inflation over time then a couple could expect to be able to pass on an estate worth around £1.5 million by the time the current freeze was due to end in 2028. It means the freeze was already set to cost families around £175,000 in extra tax, and that will only be exacerbated now by the extended freeze until the end of the decade.
“The frozen limits are one of the reasons that the nation’s IHT bill has risen in recent years, with HMRC figures showing the tax take was up £400 million in the six months to September this year, compared to the same period in 2023.
Reliefs for business and landowners to be slashed
“From 6 April 2026, full IHT relief will be available on the first £1 million of business or agricultural assets, but the rate of relief will be slashed to 50% on assets above this limit.
“Agricultural and business property relief (BPR) combined saved wealthy families from paying IHT on around £4.4bn of assets in 2021/22, making it the second most valuable of all the IHT reliefs.
“BPR was worth £2.9 billion and used by 4,170 estates, making it the second most valuable of all the IHT reliefs.
“These reliefs are designed to prevent family-owned businesses and farms being faced with the pressure of stopping trading or being sold to fund IHT bills.
“In some cases sizeable tax bills will mean families end up selling businesses, taking out a new mortgage, or getting a loan to pay the IHT bill.
AIM breathes a sigh of relief
“The rate of relief available for ‘unquoted’ shares listed on smaller markets like AIM has been cut to 50% across the board, in a move that will affect around 0.3% of estates.
“The AIM market is worth around £70 billion, and shares can currently be passed on free of inheritance tax if they are held for at least two years before death. This incentive has created a significant industry dedicated to running AIM portfolios on behalf of those looking to protect their assets from tax. There were fears that the relief could be abolished entirely which would have been in stark contrast to the Chancellor’s stated goal of reinvigorating UK capital markets and growing the economy.
“There is one bit of give amongst the Chancellor’s list of tax takes – with government confirming it will extend the scope of APR to include land managed under UK environmental agreements from April 2025.
“The measures don’t come in straight away but might put a nail in some people’s estate planning, particularly if they had been relying on IHT exemptions available in AIM portfolios or wanted to pass on more valuable business and agricultural assets. This is a complex situation where speaking to a financial planner and tax specialist can potentially save your loved ones thousands of pounds in tax.”
