The UK government made some important changes to Inheritance Tax (IHT) in the Autumn Budget 2024. These changes could affect how much tax your estate pays when you pass away. This guide explains what’s changed and how you can use gifts to reduce the amount of IHT your estate might owe.
What Is Inheritance Tax (IHT)?
Inheritance Tax is a tax on the value of your estate (your money, property, and possessions) when you die.
- You don’t pay IHT on the first £325,000 of your estate (this is called the nil-rate band).
- Anything above that is taxed at 40%.
- Transfers between spouses or civil partners are tax-free, however, leaving your entire estate to your spouse or civil partner can lead to a bigger tax bill later when the second person dies.
Key Changes from the Autumn Budget 2024
- Nil-Rate Band Frozen Until 2030
The £325,000 tax-free limit won’t increase with inflation, so more estates may end up paying IHT. Example: If your estate is worth £600,000, the taxable amount is £275,000. At 40%, that’s an IHT bill of £110,000. - Pensions Will Be Taxed from 2027
Unused pension funds will be included in your estate and taxed after April 2027. Example: If you have £200,000 in a pension pot when you die, this could add £80,000 to your IHT bill. - Reduced Relief for Farms and Businesses
From April 2026, farms and business assets over £1 million will be taxed at 20% (instead of being fully tax-free). - New Rules for Foreign Nationals
People who have lived in the UK for 10 out of the last 20 years will be considered “long term residents” and will now pay IHT on their worldwide assets.
How Gifting Can Help Reduce Inheritance Tax
Giving away assets while you're alive can lower the value of your estate and reduce IHT. But there are rules to follow.
The 7-Year Rule (Taper Relief)
A Potentially Exempt Transfer (PET) is a lifetime gift made by an individual that is initially exempt from inheritance tax but may become taxable if the person making the gift (the donor) dies within seven years of making it.
Gifts with Reservation of Benefit (GROBs)
If you give something away but still benefit from it, like giving your house to your children but continuing to live in it rent-free, it still counts as part of your estate and will be taxed (for Inheritance Tax purposes only). To avoid this:
- Pay market rent to live in the property.
- Or move out entirely.
Tax-Free Gift Allowances
You can give away certain amounts each year without paying IHT:
- £3,000 total each year to anyone.
- £5,000 for a child’s wedding.
- £2,500 for a grandchild’s wedding.
- £1,000 for anyone else’s wedding.
- £250 to as many people as you like (as long as they haven’t received another gift from you that year).
Gifts to Charity
- Gifts to UK charities are always tax-free.
- If you leave 10% or more of your estate to charity, the IHT rate on the rest of your estate drops from 40% to 36%.
Planning After the 2024 Budget
The rules for gifting haven’t changed, but more assets (like pensions and business property) are now included in your estate. This means:
- Regular lifetime gifting is still a good way to reduce your estate’s value.
- Pension planning is more important— depending on your personal tax situation, taking money out and gifting it might save tax, even if it means paying income tax now.
- Business and farm owners need to plan carefully, especially if they want to pass assets to family.
Get Professional Advice
Estate planning can be complex. Mistakes can lead to unexpected tax bills so we would recommend always speak to a legal or financial adviser before making decisions.
Our specialist team will take the time to understand your personal circumstances and will give you advice surrounding all your options so that you can make an informed decision on how you plan your estate.
Contact us to make an appointment at one of our offices in Chesterfield, Sheffield, Dronfield or Mansfield.