Following the Labour government's much-anticipated first Budget in more than 14 years, we all welcome the clarity it has provided after a long period of uncertainty. A short update on the Budget proposals (which are subject to enactment in the Finance Bill) in respect of Inheritance Tax and Capital Gains Tax is set out below.

The 2024 Autumn Budget introduces significant changes to Inheritance Tax (IHT), reshaping financial planning strategies for advisers and their clients. These adjustments, spanning Business Relief (BR) thresholds, inherited pension taxation, and frozen Nil Rate Bands, highlight the importance of proactive estate planning. This guide outlines the key reforms, their timelines, and strategic recommendations to help advisers optimise their clients’ financial positions.

We understand that advisers and their clients may have questions about the announced changes and their impact and are committed to being a proactive partner in helping advisers navigate the recent regulatory changes.

A timeline of changes from 2024 onwards

Before we get into the details of the changes to Inheritance Tax and Capital Gains Tax, here is a timeline of expected changes as at December 2024.

October 30, 2024

What changes:

• The Pension Death Benefits technical consultation opens.
• This consultation will focus on the inclusion of inherited pensions in estates for IHT purposes.
• Advisers and industry experts are invited to provide feedback on administrative and practical challenges.

January 22, 2025

What changes:

• The Pension Death Benefits Technical Consultation closes.
• Input from this consultation will inform the guidance on implementing inherited pensions into IHT rules.

Early 2025

What changes:

• ‍Technical consultation on Business Relief (BR) and Agricultural Property Relief (APR) begins.
• This consultation will cover the implementation of the £1 million cap and taper relief.

April 6, 2025

What changes:

• ‍Non-domiciled (non-dom) IHT rule changes come into effect.
• The specifics of these changes include increased tax scrutiny on non-dom estates.

Q3 2025 (July-September 2025)

What changes:

• Implementation guidance for inherited pensions is expected to be published.
• Advisers will receive further clarity on how to handle pension IHT implications.

Late 2025 (October-December 2025)

What changes:

• Final guidance on Business Relief tapering and £1 million threshold implementation is anticipated.
• Advisers will have clear details to guide portfolio restructuring.

April 6, 2026

Essential Business Relief changes set to transform wealth planning with advisers needing to review all client portfolios before this April 2026 deadline.

What changes:

• The new £1 million Business Relief cap on unlisted shares is officially introduced.
• 100% Business Relief will only apply to the first £1 million of qualifying assets.
• Any amount exceeding £1 million will be taxed at an effective rate of 20%.
• A 20% taxation will apply [DS1] to AIM investments in Business Relief qualifying companies

April 6, 2027

What changes:

• ‍Inherited pensions will officially be included in taxable estates for IHT purposes.
• This change will impact clients relying on pension transfers as a tax-free wealth transfer strategy.

April 6, 2030

What changes:

• The Nil Rate Band freeze officially ends.
• Until this date, the nil rate band remains at £325,000, with the £175,000 Residence Nil Rate Band addition.
• These thresholds may be reviewed or adjusted post-2030.

Key changes in the Autumn Budget 2024

1. Business Relief reforms

One of the most notable changes is the introduction of a £1 million cap on 100% Business Relief, effective from April 2026 on unlisted shares in Business Relief qualifying companies. This means that estates with qualifying assets exceeding this amount will face a 20% effective tax rate on the excess.

With listed shares such as those held in AIM, the Inheritance Tax relief will be reduced from 100% to 50%, essentially an effective 20% IHT charge on AIM shares.

Pre-2026 opportunities

Until April 2026, the current rules allow 100% Business Relief on qualifying assets, including AIM investments. This presents an important window for advisers to help clients restructure their portfolios to maximise relief under the existing framework.

Impact post-2026

After April 2026, the tiered BR system will require meticulous planning. Unlisted combined business and agricultural assets over £1 million will be subject to Taper Relief, and detailed guidance on its application is expected by late 2025. For listed AIM investments, a flat 20% rate will apply regardless of the investment amount.

2. Pension planning timeline

From April 2027, inherited pensions will no longer be exempt from IHT, marking a significant departure from current policy. This change will require a rethink of pension strategies, particularly for clients relying on pensions as a tax-efficient wealth transfer tool.

Consultation and implementation timeline

The consultation on pension death benefits opened on October 30, 2024, and will close on January 22, 2025. Implementation guidance is expected by Q3 2025, giving advisers a limited window to prepare for the changes.

• Begin educating clients on the potential implications of including pensions in taxable estates.

3. Nil Rate Band extension

The Nil Rate Band, frozen at £325,000 (plus the £175,000 residence addition), will remain unchanged until April 2030. While this appears to offer stability, rising property values and asset growth mean more estates will fall within the IHT net.

4. Key consultation periods and regulatory developments

Pension death benefits technical consultation

The inclusion of inherited pensions in taxable estates represents a shift in IHT policy. To ensure a smooth transition, the government has opened a consultation to address the implementation process.

• Consultation Period: October 30, 2024, to January 22, 2025.
• Focus: examining how UK pension schemes can integrate these changes efficiently.
• Industry input: Feedback is particularly sought on administrative challenges and practical implementation concerns.
• Guidance timeline: Final implementation guidance is expected in Q3 2025, giving advisers time to align strategies with the new rules.

Business Relief and Agricultural Property Relief

The £1 million threshold for 100% tax relief on Business Relief (BR) and Agricultural Property Relief (APR) assets significantly impacts wealth planning strategies for larger estates.

• Technical consultation: Announced for early 2025.
• Objective: To address the detailed application of the new £1 million threshold and the Taper Relief mechanism for amounts exceeding the threshold.
• Industry role: Contributions are encouraged to refine practical applications, ensuring clarity for advisers and their clients.
• Final guidance: Anticipated by late 2025, allowing for portfolio adjustments ahead of the April 2026 implementation.

Staying updated

Given the ongoing nature of these consultations, advisers must stay informed through the following:

• Monitoring the Government’s consultation website for updates.
• Checking HMRC’s technical consultation pages for the latest developments.
• Engaging with professional bodies like the Society of Trust and Estate Practitioners (STEP) and the ICAEW for expert insights.

5. Preparing for what’s next

The Inheritance Tax changes announced in the 2024 Autumn Budget represent both challenges and opportunities for financial advisers. With implementation timelines spanning from 2025 to 2030, advisers have a critical role to play in guiding clients through these reforms.

Key steps for advisers:

1. Regularly review client portfolios to identify areas needing immediate attention.
2. Ensure to take advantage of providers such as Downing who can offer support and help to answer any questions you may have. Please visit our post-Budget forum page to see what questions advisers have been asking and submit a question of your own.
3. Monitor updates from HMRC and industry bodies to stay ahead of regulatory developments.‍

6. Seizing the opportunity

The Inheritance Tax reforms in the 2024 Autumn Budget demand careful consideration and strategic action. By staying informed and proactive, advisers can not only navigate these changes effectively but also demonstrate their value as trusted partners in wealth planning.

For further insights and tailored advice, contact our team of experts, we can work together to ensure your clients’ financial futures remain secure.

Important notice

‍Opinions expressed represent the views of the author at the time of publication, are subject to change, and should not be interpreted as investment or tax advice.

Important notice: This article is for investment professionals only. This article is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. No reliance should be made on this content to inform any investment of tax planning decision.

This content contains information that is believed to be accurate at the time of publication but is subject to change without notice. The explanation of all of the tax rules set out have been written in accordance with our understanding of the law and interpretation of it at the time of publication.

Whilst care has been taken in compiling this content, no representation or warranty, express or implied, is made by Downing as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.

References

Section: A timeline of changes from 2024 onwards

• ‍Autumn Budget 2024 and Finance Bill  2024-25: Progress of the Bill - House of Commons Library
• ‍Autumn Budget 2024 - Inheritance Tax |  Travers Smith
• ‍Following the Autumn Budget: changes to IHT  and CGT

Section: Key changes in the Autumn Budget 2024    

• ‍Autumn Budget 2024 — Overview of tax  legislation and rates (OOTLAR) - GOV.UK
• ‍UK Autumn Budget 2024 - Tax updates - KPMG  Ireland‍