Autumn Budget 2024: Sweeping overhaul of inheritance tax regime revealed
Alongside the changes to pension pots, the Chancellor said she was changing the taxation of gifts passed on during someone's lifetime.
Inherited pension pots will be subjected to inheritance tax from April 2027 under new rules announced by the government on Wednesday.
The move came alongside an array of changes to the various loopholes in the levy which the government hopes will raise over £2bn.
“I understand the strongly held desire to pass down savings to children and grandchildren. So I am taking a balanced approach in my package today,” Chancellor Rachel Reeves said.
Inheritance tax is applied at a flat rate of 40 per cent on estates worth over £325,000, but the system includes many loopholes which means that the effective rate is often much lower.
Until now a spouse’s pension pot could be inherited without any tax, but Reeves confirmed that this would change.
“This represents a fundamental shift to how wealthier individuals think about accessing their money in retirement,” Mike Ambery, retirement savings director at Standard Life said.
Alongside changes to pension pots, the Chancellor confirmed that she was extending the freeze on thresholds until 2030. The threshold freeze was due to expire in 2028.
Reeves also announced that she would cap relief on the inheritance of agricultural land and family businesses, both of which can be passed on tax free under current rules.
“From April 2026, the first £1m of combined business and agricultural assets will continue to attract no inheritance tax at all, but for assets over £1m, inheritance tax will apply with 50 per cent relief, at an effective rate of 20 per cent,” she said.
“This will ensure we continue to protect small family farms and three-quarters of claims will be unaffected by these changes,” she said.
The tax relief available on inherited AIM shares was also set at 50 per cent “in all circumstances”.
Many think tanks had been calling for reform of the levy in the run-up to the Budget, arguing that the various loopholes created unfairness in the system
A recent study from the Centre for the Analysis of Taxation (CenTax) found that a quarter of estates worth over £10m paid an average rate of inheritance tax of nine per cent, while a sixth pay under four per cent.
