1st November 2024

The Government’s October Budget 2024: Inheritance tax, Wills and those who need to review their Wills.

It is important to note that the changes which are discussed hereafter are ONLY applicable for those with certain types of Wills and certain types of assets, and that it is only relevant for those with such Wills and assets who die AFTER 6th April 2026. 

Before that time, the existing rules apply (which are not going to be discussed in this article).

 

So, who is this article aimed at, audience wise?

Answer – those with assets that would have qualified under the existing rules for either or both Agricultural Property Relief (‘APR’) and Business Property Relief (‘BPR’) on death.

These people may well have a Will that leaves such favoured tax status assets not to their surviving spouse, but either to a non-exempt beneficiary such as a child or to a discretionary trust arrangement. This could be pre-packaged within the Will to test the APR/BPR claim and to lock the saving away for the next generation to benefit on the surviving spouse’s death.

 

So, what is the problem? Essentially, we now have a position for those dying post 6th April 2026 that the first £1 million of APR/BPR of assets continue with the most favoured Inheritance Tax (‘IHT’) tax status of 100% tax relief. Thereafter, the rate of relief is automatically only 50%.  Previously, with care, 100% relief could be secured if one’s such favoured assets passed certain strict tests, without any upper financial limit to the amount of relief that could be secured.

 

Meaning, if one has a Will which leaves both 100% relievable assets and 50% relievable assets up to the maximum value taking into account one’s own Nil Rate Band Allowance (so in real terms that could be £650,000 (NRB of £325,000 times 2) of 50% relieved assets) either to one’s children or to a discretionary trust AND one has a then surviving spouse, that arrangement, post 6th April 2026 is not going to be the most IHT favoured outcome. This is due to a significant amount of IHT being payable as a result of the tax rule changes which the budget announced as of 6th April 2026.

 

Instead, amended drafting is required to leave merely 100% relievable assets to the said discretionary trust or to the children, and all other assets should be routed via the then surviving spouse either on an outright basis or a flexible life interest basis.

This ensures no IHT on one’s death at that point, and assets pass to an IHT exempt beneficiary (one’s surviving spouse), who will have their own £1 million allowance to use and for whom lifetime planning in the form of gifting and/or lifetime trust set up with the assets passing into those trusts can be implemented. This is hoping in both cases either that the full 7-year survivorship period is met by one’s spouse outliving that period or if the gift is large in financial value (more than the Nil Rate Band Allowance), that taper relief for IHT is secured by your spouse surviving at least 3 years or more from the completion of the gifting exercise.

 

As stated above, there is probably merit in sticking with the current Will you may have for now, as should one die BEFORE 6th April 2026, then having your pre-existing will structure may lead to a better outcome than going to the new structure. But certainly, if one is alive in the autumn of 2025/through to early spring of 2026, then your Will may need reviewing and updating. The penalties for not doing so may be significant in the order of hundreds of thousands of pounds, although for now, the escape route of a Deed of Variation for those dying with the wrong Will in place may be available as long as the same is agreed and as long as Deeds of Variation are a permitted part of our toolbox as they are at present.

 

We feel that the changes made in this budget may be the start of a more thorough overhaul of the system, which may very well not be in the IHT payer’s favour by way of expected tax outcomes.

For more information, please contact Edward Walter on 01892 502 320 ewalter@bussmurton.co.uk

Edward Walter

Edward Walter
Partner