New year – time to review your estate planning

The new year is often a time to review and make changes. Of utmost importance is reviewing your estate planning, given the major changes to inheritance tax (IHT) announced in the Autumn Budget 2024. Not only do you need to understand potential tax liabilities but also what planning will benefit the family overall.

As announced in the Budget, many of the mechanisms currently used to minimise inheritance tax exposure will either cease or be less effective. A significant change for many will be the inclusion of defined contribution pension pots in estates’ IHT liabilities from April 2027, while nil rate bands are frozen for an extra two years, until April 2030. 

From April 2026, business owners and farmers face further changes when the first £1m of combined business and agricultural assets will still be passed on tax-free, but IHT will be levied at an effective tax rate of 20% on the rest. A 20% rate will also apply to AIM shares, a common investment typically utilised by many as part of their estate planning.   

Whilst changes to your planning may well be needed, seeking professional advice is key to making sure any changes have the required impact.

Key areas to consider when speaking to your advisors are:

1. Does your will do what you want it to do in light of the new tax rules? The changes to business relief and agricultural property relief may mean your wills require amendment to maximise available IHT reliefs.
2. If you don’t have a will, make one, not only for tax reasons but to give peace of mind to your family. Unnecessary stress and potential disputes could be avoided with a well drafted will.
3. Consider arranging lasting power of attorney (LPA) to make sure your wishes are articulated in the event you lose capacity.
4. Should you gift or spend, rather than continue growing pension funds which will be a taxable asset in your estate from April 2027? This requires careful consideration both of your own longer-term income requirements and how beneficiaries of gifts will use your gifts. Rather than take drastic action, seeking professional advice and gifting over a longer period will likely be the better approach.
5. If married, consider how assets are held to best utilise the available nil-rate bands. An inheritance from a parent could perhaps go direct to grandchildren using a deed of variation. Shares in a personally owned business could be moved to mixed ownership. Wills could be revised to make any gifts on first death to children to trust rather than to a spouse.
6. Review your pension pots and consider whether to start drawing down as income to make regular gifts using the “normal expenditure from income” rule. If you opt to take your 25% tax-free cash, regular gifts would not be deemed to be from income, but spending it could be an attractive option!
7. Insuring against potentially substantial IHT liabilities could be an efficient way to avoid beneficiaries having to pay themselves. Such policies can be expensive, so drawing down your pension pot could be a way of funding the cost.

Further changes on the horizon?

It should be noted that there are ongoing technical consultations on many of the proposed changes to inheritance tax. Until the outcome of the consultations are known, our advice in most cases is to wait in case further changes are made. The consultation on the pension reforms closes on 22 January 2025. We still await further technical consultations to start soon. 

Seek professional help

Of course, none of these steps should be taken without proper professional advice.  Bringing your tax advisor, financial planner and solicitor together to make sure any action taken is properly aligned will be key to giving you both financial security and peace of mind that you have taken all appropriate steps to secure your family’s future.

You can contact your usual Larking Gowen advisor on 0330 024 0888 or email enquiry@larking-gowen.co.uk. You can also find contact details on the Our People section of the website.

Becky Ames