IHT Planning Ahead of the Autumn Budget

This year’s Autumn Budget will take place on 26 November, amid growing speculation about further tax rises. Now is an ideal time to review your estate and succession planning.

While the government appears to be holding firm on its promise not to alter the Income Tax regime, there is increasing consensus that Inheritance Tax (IHT) may once again be in focus. Last year’s Budget introduced significant changes, including restrictions to Business Property Relief (BPR) and Agricultural Property Relief (APR) and the inclusion of pension pots within the scope of IHT.

This year, potential changes could include:

• A cap on lifetime gifts: Currently, gifts made more than 7 years before death are exempt from IHT, with taper relief applying between years 3 and 7. A proposed cap could limit the value of gifts made during a lifetime, potentially bringing more estates into the IHT net.
• Extension of the 7 year rule for lifetime gifts: The above 7 year period for lifetime gifts to “fall out” of your estate for IHT purposes may be increased.
• Review of taper relief: The longstanding taper relief rules may also be reconsidered, which could reduce the effectiveness of current estate planning strategies.

These changes, if introduced, could significantly impact your ability to mitigate IHT through gifting and other planning tools.

What should you consider now?

We recommend reviewing your current estate plan and considering actions such as:

• Making lifetime gifts while current rules remain in place;
• Reviewing use of trusts and exemptions;
• Considering pension planning in light of the recent changes; and
• Reviewing your eligibility for BPR and APR.

Is it too late to do anything about BPR and APR?

There is some good news if you want to preserve your entitlement to BPR and APR. The main opportunity pre 6 April 2026 is to be able to settle assets qualifying for BPR/APR into discretionary trusts with no lifetime IHT due. This window will close from 6 April 2026 and restrict the value that can be introduced tax free to £1m per settlor, and there is some fear that the window could be closed earlier in the Autumn Budget. If this is something that you might consider, we recommend that you do not delay.

What about pensions?

It has been confirmed that APR and BPR will not apply to assets held within pension schemes which, from 6 April 2027, will also form part of a person’s estate for IHT purposes.

Accordingly, some planning is being done around drawing down pensions and either gifting out of surplus income, or giving other income generating assets away and using pension income to replace the lost income.

Moving away from IHT for a moment, currently individuals can withdraw 25% of their pension pot tax free up to a maximum of £268,275 (greater where historic protection has been granted) but there is a rumour that this tax free withdrawal limit may be further restricted. Now may therefore be a good time to consider your pension arrangements.

So what next?

It is important to realise that rumours and speculation are just that, and some of the changes discussed above may not in fact happen. However, if you are considering making gifts or succession planning, then it may be worth taking action before the Autumn Budget.

We are here to help you so please get in touch if you would like to discuss your options and ensure that you make the most of the current rules.