Changes to Current IHT Regime
Recent fears of seismic changes to the IHT landscape have proved unfounded in today’s Budget. Nonetheless, there are still some proposed changes to this area:
APR & BPR
Currently, farming and business assets qualify for significant IHT reliefs; known as Agricultural Property Relief (APR) and Business Property Relief (BPR). This can potentially attract 100% relief for IHT purposes, depending on the asset in question and whether certain requirements have been satisfied.
After the previous 2024 Budget announced that the combined full relief for APR and BPR would be capped at £1 million, the 2025 Budget has slightly softened the position by allowing the transfer of this £1million APR/BPR allowance between spouses and civil partners. This means there would be a potential buffer of £2 million on the survivor’s death against qualifying agricultural and business assets (in addition to any other IHT allowances also available).
Thresholds
The IHT allowances will remain frozen for an additional tax year, up until 5 April 2031. Consequently, this means that the Nil Rate Band (NRB) will stay at £325,000 whilst the Residence Nil Rate Band (RNRB) is kept at £175,000.
This maintains the current position that a couple who are married or in a civil partnership can leave up to £1 million free of IHT on death, with the balance over the £1 million threshold being charged at a rate of 40%.
Infected Blood Compensation Scheme
Any posthumous compensation paid will be free of IHT. In addition, any “first living recipient of compensation payments” will have a 2-year window in which to gift some/all of the compensation IHT-free (so the normal IHT rules applying to lifetime gifts would not apply).
Pension Funds
Previously, it was announced that many private pensions would fall within the IHT net, starting from April 2027. Although this is still under consultation and the draft legislation is awaited, the Budget Document does provide a bit more clarity on how the IHT funding of pensions will work. This is welcome news for executors and will enable them to liaise with pension trustees to pay IHT in particular circumstances.
Trusts
For existing trusts affected by the updated domicile rules (which effectively brought into IHT various offshore trusts), there will be a cap of £5million on IHT charges for those trusts in respect of trust assets that are “excluded property”. This cap has been backdated to IHT charges arising from the start of the current tax year.
Please do not hesitate to contact us if you would like to discuss how today’s announcements may affect your own position or if you would find it helpful to obtain further advice on these matters.
