Implications for estate planning
Increased tax liabilities
The projected rise in IHT-liable estates and revenue across the UK means that more estates will be subject to Inheritance Tax. This is driven by rising property values and the frozen IHT nil-rate band, which has not kept pace with inflation. As a result, individuals and families will need to reassess their estate planning strategies to mitigate these increased tax liabilities.
Strategic gifting and trusts
One effective strategy to reduce IHT liabilities is through gifting and the use of trusts. By gifting assets during their lifetime, individuals can reduce the value of their estate and potentially avoid IHT on those assets. Trusts can also be used to manage and protect assets, ensuring they are passed on to beneficiaries in a tax-efficient manner. These strategies can help to minimise the impact of the frozen nil-rate band and rising property values.
Review of pension and investment strategies
The inclusion of unused pension funds in IHT calculations from April 2027 will require individuals to review their retirement savings and investment strategies. Previously, pensions were generally excluded from IHT, but this change means that beneficiaries may face a 40% tax on amounts above the nil-rate band. Adjusting pension contributions and considering alternative investment vehicles may be necessary to optimise tax efficiency.
Impact of BPR and APR reforms
Reforms to Business Property Relief (BPR) and Agricultural Property Relief (APR) will also have significant implications for estate planning. The new £1 million cap on these reliefs means that excess business and agricultural assets will be taxed at an effective 20% rate. Families with substantial business or agricultural holdings will need to explore strategies to manage these assets and potentially restructure their estates to minimize tax liabilities.
In summary
The projected increase in IHT liabilities and revenue highlights the importance of proactive estate planning. By considering strategies such as gifting, trusts, and reviewing pension and investment plans, individuals can better manage their estates and mitigate the impact of these changes.