Since the Autumn Budget at the end of October last year, inheritance tax has rarely been far from the headlines. This has been fuelled in recent weeks by mounting speculation that further inheritance tax increases could be on the way. So, what is the latest position, and what actions should you be taking?
First, the good news
The publication in July of the long-awaited draft tax legislation for the changes first proposed in the Budget last year brought some relief for those in defined benefit pension schemes, such as the NHS scheme. Following the period of consultation, it was announced that death in service benefits payable from a registered pension scheme will remain outside of the scope of inheritance tax.
It had previously been feared that such benefits would be brought into inheritance tax from 5 April 2027, along with the value of unspent pension pots in defined contribution pension schemes.
What is changing?
From 6 April 2026, there is to be a restriction on Business Property Relief and Agricultural Property Relief. In short, anyone with qualifying business assets (trading businesses) and farming assets, with a combined value of over £1m, needs to expect to be paying more inheritance tax from 6 April 2026 due to a restriction on the reliefs currently available on these assets.
In addition, from 6 April 2027, unspent pension pots will be brought within the scope of inheritance tax. This will potentially affect everyone with a personal pension.
What isn’t changing?
The Nil Rate Band, the value of assets that can be held before inheritance tax starts to be due, has been frozen at £325,000 since 2009, so many more estates are being brought into inheritance tax every year.
The Nil Rate Band will stay at this level until at least 2030, so, likely, many people who thought that inheritance tax wouldn’t apply to their estates could find that it will.
What further changes could there be?
There has been recent media speculation that further changes to inheritance tax could be on the way in the Budget later this year, with a cap on lifetime gifting, potentially from Budget Day itself, being given as one of the options, another being a simple increase in the tax rate.
What do I need to know?
Inheritance tax is generally payable 6 months after the date of death.
It is important that potential Inheritance Tax liabilities are fully understood so that they can be planned for and your beneficiaries receive what you intended.
How can we support you?
If you are concerned that inheritance tax could affect you, you should seek professional advice to ascertain your potential liability and to find out what planning opportunities are available to mitigate the tax.
Here at BHP, we have a large and highly experienced tax team that can advise on this and other tax matters. We are also independent financial advisors, allowing us to discuss your pension and potential planning options with you.
If you are concerned, please don’t hesitate to get in touch with Kirsty Swinburn or your usual healthcare contact. There are still many ways to reduce the inheritance tax burden, and we’re here to help.
