The Autumn Budget 2024 has introduced major changes to the UK’s Inheritance Tax (IHT) landscape, creating new challenges for estate planning. Key among these changes is the inclusion of pensions in estate valuations for IHT from April 2027, alongside frozen tax-free thresholds and revisions to Agricultural and Business Reliefs (APR and BPR). These developments could significantly increase IHT exposure, prompting advisers and families to rethink their strategies.

Pensions and Estate Planning From April 2027, unused pension funds at death will be included in estate valuations for IHT. Previously excluded, pensions served as a key tool for wealth transfer. With the nil-rate band (£325,000) and residence nil-rate band (£175,000) frozen until 2030, more estates will face the 40% IHT rate, impacting families previously outside the IHT net.

Changes to Agricultural and Business Reliefs From April 2026, APR and BPR are be combined with a £1m threshold at 100% relief and 50% relief thereafter (subject to a technical consultation and draft legislation in 2025). Unquoted shares like AIM will only qualify for 50% relief in all circumstances. These changes heighten the need for timely lifetime gifting, Trust strategies, and proactive planning on first death.

Trusts: A Strategic Solution With pensions entering the IHT framework and frozen allowances, Trusts become vital for reducing taxable estates. By withdrawing pension assets and gifting into Trust, families can protect wealth from social risks like divorce and bankruptcy while enabling intergenerational tax planning for up to 125 years.

Flexible Reversionary Trusts (FRTs) WAY Trustees Limited specialises in Flexible Reversionary Trusts (FRTs), offering tailored solutions for surplus income or excess capital:

• Immediate IHT Exemption for Surplus Income: Excess income from pension drawdown can be gifted into FRTs, qualifying for immediate IHT exemption under the Gifts from Normal Expenditure rules.
• Managing Excess Capital: Tax-free pension lump sums can be gifted into FRTs, reducing estate values while maintaining flexibility for the Settlor and Beneficiaries.
• Tailored Flexibility: FRTs address surplus income, capital, or a combination, offering flexible planning options for your clients.

Preparing for the New IHT Landscape The inclusion of pensions, frozen allowances, and changes to APR/BPR demand a proactive approach. Revisiting estate plans, considering lifetime gifting via flexible Trust structures are essential.

WAY Trustees Limited, with over 20 years of experience of managing Flexible Reversionary Trusts, is here to guide you through these changes. Contact us today to safeguard your clients’ wealth and secure their financial legacy.