The 2024 Budget signaled one of the most significant reforms of the inheritance tax (“IHT”) landscape. While much commentary has focused on the forthcoming reforms to Agricultural Property Relief and Business Property Relief (APR/BPR), these changes form only part of a wider reshaping of how wealth will be taxed on death. The coming years will also see pensions - long treated as an IHT‑efficient wrapper - brought firmly into the inheritance tax net.
Agricultural and Business Property Relief: planning post-April
Understandably, client focus has been on accelerating transfers and restructuring ownership before the new capped allowance applies. However, meaningful planning opportunities remain post-6 April.
With unlimited relief removed and allowances now refreshed on cyclical timelines, advisers must plan around natural decision points - first deaths, gifting windows, and seven and ten year anniversaries - rather than relying on the blanket protection previously afforded.
Individual planning to mitigate IHT
The introduction of the APR/BPR allowance means a key component of individual estate planning to mitigate inheritance tax will be ensuring that the allowance and transferable allowance are fully utilised.
Families with business or agricultural assets exceeding the combined £5 million threshold may need to consider whether lifetime transfers make sense to reduce exposure on the second death. This is familiar terrain, but the rationale is now sharper: without the cushion of 100% relief, failing to manage qualifying assets within the allowance may create a substantial IHT burden.
Such planning must be approached carefully. The timing of gifts is important, particularly given the continued relevance of the seven‑year survivorship rule. For farming or owner‑managed business families the tension between tax efficiency, control, and succession objectives will continue to dominate conversations.
Trust planning - what’s changed?
While individuals will need to think more deliberately about the flow of assets on death, the implications for trusts are no less significant, with the new regime shaping how trustees must approach timing, allowances, and asset management.
For trusts, the reforms introduce a clear divide between pre‑30 October 2024 trusts and those created afterwards. Trusts that held assets before that date which would qualify for 100% relief under the new regime may meet the criteria for Qualifying Pre‑Commencement Settlement (QPCS) status. This means that they benefit from transitional protection and do not enter the new capped‑allowance regime until their first ten‑year anniversary after 6 April 2026. Until then, they continue under the pre‑reform rules, providing a valuable window to reorganise assets and plan appointments before the allowance applies.
Trusts established - or acquiring qualifying assets - on or after 30 October fall into the new regime from 6 April, and advisers must pay attention to how the allowance is allocated, with trusts created by the same settlor on or after 30 October sharing a single allowance. Advisers need to evaluate the settlor’s entire trust landscape, rather than each trust in isolation.
Within this framework, the ten‑year anniversary becomes an essential planning moment. The value and composition of trust assets at that point directly determine the level of unrelieved value brought into the periodic charge. Timing appointments just before or after the anniversary can meaningfully influence exposure.
Liquidity management also becomes essential. With only 50% relief above the allowance, and an automatic 50% relief for certain assets (such as AIM holdings), charges may arise when there is no natural source of cash. Trustees must ensure access to realisable assets or plan to meet instalments without compromising core business or agricultural holdings.
Pensions to be subject to IHT
While the relief changes reshape planning for business and farming families, the reform that will affect most clients is the IHT exposure attaching to pensions from April 2027. This is the point at which long‑settled assumptions - particularly the idea that pensions should always be preserved as the last wrapper touched - will need to be revisited.
A few steps may make a meaningful difference:
- Nomination forms
Ensuring nomination forms are current is essential. These still determine who is intended to receive the benefits and this will affect whether exemptions - such as spouse or charity - will apply.
- Using surplus income
Regular gifts made from excess income remain a valuable mitigation strategy. To use the ‘normal expenditure out of income’ exemption effectively, coordination with financial advisors is essential to ensure withdrawals, gifting patterns and documentation support the exemption.
- Trust nominations
Where young or vulnerable beneficiaries may inherit, nominating the pension to a trust may still be appropriate. The analysis now includes combined income tax/IHT exposure, so joint input from lawyers and financial advisors is key.
Life insurance as a liquidity tool
Life insurance is becoming increasingly important, particularly for clients with anticipated liabilities or asset‑rich/cash‑poor estates.
Generally, policies should be written in trust; otherwise, the proceeds fall into the estate and may be subject to IHT. As pensions move into the IHT net and relief regimes tighten, insurance is an attractive option in many estate plans, and advisers will need to work closely across disciplines to ensure structures and financial planning align.
An integrated advisory role
Across both domains, the reforms demand a deeper integration of professional disciplines. Lawyers, financial planners, investment managers, and tax advisers must work in concert to align structural planning and liquidity management. Planning becomes a more continuous exercise, centred on ongoing review of relief utilisation, asset values and long‑term strategy as circumstances develop.
It is important to note that the legislation underpinning these reforms remains in draft form, and the final provisions may change before implementation
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Solicitor
