Inheritance Tax (IHT) Planning
What do we know?
Inheritance Tax thresholds
The IHT thresholds remain fixed at their current levels until April 2030:
- Nil-rate band at £325,000
- Residence nil-rate band at £175,000
- Residence nil-rate band taper, starting at £2 million
From 6 April 2026, the first £1 million of combined business and agricultural assets will continue to attract no IHT at all. For assets over this threshold, IHT will apply with 50% relief meaning an effective IHT rate of 20%. The cap will also apply to Trusts holding assets which qualify for business relief (BR) and/or agricultural relief (AR).
Also coming into effect from 6 April 2026, AIM shares will now receive 50% relief from IHT uncapped (effective IHT rate of 20%). Changes will be made to the IHT regime based on a new residence-based system from April 2025.
How does this affect me?
If you have a family business, valued at over £1m, that is currently 100% protected from IHT.
However, from April 2026, the first £1m will be free from IHT but, thereafter, an effective IHT rate of 20% will apply. So, for a business valued at £3m, that could mean an IHT liability of £400,000. You will need to review your existing strategy for intergenerational wealth transfer and review your future succession strategies.
- You have previously established a Trust and are thinking about setting up another Trust.
Trusts already established which hold assets that qualify for BR and/or AR will continue to qualify for 100% relief on assets up to £1m. For trusts set up by the same person on or after the 24 October 2024, the government intends to introduce rules to ensure this allowance is divided among the trusts. You may need to consider alternative options and review your succession planning.
- You hold an AIM portfolio as part of your IHT planning strategy.
You may need to review your overall strategy and reasons for holding an AIM portfolio. Although no longer exempt from IHT if held for at least 2 years, with an effective tax rate of 20% rather than 40%, AIM stocks may still pay an important role in your overall financial planning.
- You plan to move and live abroad when you retire.
From 6 April 2025, if you leave the UK, there will be a ten-year tail of IHT exposure. For those that plan to leave by April 2025, they will be subject to a 3-year IHT tail. Domicile will no longer have any relevance.
Capital Gains Tax
Speculation around substantial increases to capital gains tax (CGT) was rife, but the reality was essentially an equalisation with the rates charged on residential property. So, for a basic rate tax payer CGT moves from 10% to 18% and for a higher rate tax payer from 20% to 24%. This was effective from October 30th.
Business Asset Disposal Relief (BADR) remains in place, giving a 10% rate of tax for now on lifetime gains of up to £1m. However, the applicable rate of CGT will increase to 14% from 6 April 2025, and further to 18% from April 2026.
The CGT rate for Investors’ Relief, which applies in similar circumstances to BADR but where the investor is unconnected with the business, will increase in parallel with the BADR rates. The lifetime limit for the relief will also reduce from £10 million to £1 million for disposals made on or after 30 October 2024, significantly limiting its financial benefit going forward.
Summary
If any of the Budget announcements have raised concerns for you and your family’s tax and succession planning, please contact your usual Pothecary Witham Weld adviser to discuss how you may be affected and the planning options available to you.
This publication is for general information only and does not seek to give legal advice or to be an exhaustive statement of the law. Specific advice should always be sought for individual cases.