Tim Woodgates.
Tim Woodgates, partner at chartered accountants Moore, offers some guidance to business owners and individual investors in the wake of the government’s proposed changes to Inheritance Tax.
……………………………….
Published in association with
AHEAD of the Budget, the Prime Minister stated that it was time for the UK to face the “harsh light of fiscal reality.” We now know more about who will feel the full impact of that reality, at least in the short to medium term.
In delivering this Budget, Chancellor Rachel Reeves has sought to strike a difficult balance between immediate revenue raising and spending cuts while also focusing on longer-term growth and investment.
This balancing act was shaped by the constraints of manifesto tax promises that limited the government’s options.
As expected, the Chancellor introduced significant changes to Inheritance Tax, which will most affect business owners, farmers and individuals with traditionally IHT-friendly investments such as AIM share portfolios.
AIM share portfolios, which include shares in smaller, growth-focused companies listed on the Alternative Investment Market, remain a key area for IHT planning due to their potential eligibility for tax reliefs such as Business Property Relief.
These groups will most likely need to reassess their current inheritance tax strategies.
IHT rules have remained unchanged for several years. The Nil Rate Band and Residence Nil Rate Band for IHT are currently frozen at £325,000 and £175,000 respectively until April 2028. The government has now extended these freeze periods until April 2030.
The government will also bring unused pension funds and death benefits payable from a pension into an individual’s estate for IHT purposes from April 6, 2027.
This change could lead some estates to surpass the £2 million threshold, at which point the Residence Nil Rate Band begins to taper away.
Agricultural Property Relief and Business Property Relief will undergo reforms. From April 2026, the first £1 million of combined eligible agricultural and business assets will receive 100% relief. However, any assets above this threshold will only qualify for 50% relief. Additionally, the government will reduce the rate of BPR to 50% for shares in companies not listed on a recognised stock exchange, such as those on AIM.
A new residence-based system for IHT will be introduced on April 6, 2025, which will close the use of offshore trusts to shield assets from IHT.
These restrictions on APR and BPR will pose a significant challenge for many business owners whose families may now have to find ways to cover the inheritance tax bill without selling or breaking up the family business.
Lifetime gifting and the use of trusts remain effective IHT planning tools but it is important to carefully consider the full tax implications before taking action. Reviewing your Will to ensure it remains tax-efficient under the new rules is also highly recommended.
……………………………….
Stay connected with Northamptonshire business through Business Times. Join our exclusive community for the latest news, insights, updates, features and thought leadership.
Stay informed – subscribe now at bit.ly/437DsSm. Unsubscribe at any time.
