There have recently been some changes to inheritance tax so we’re here to give you a quick rundown on what exactly is going on…
Firstly, What is Inheritance Tax?
Inheritance tax (IHT) is a tax which is applied to your estate (a sum of your property, money and belongings) when you die. It is usually not charged if:
- Your estate is valued below £325,000
- You leave everything above this threshold of £325,000 to your spouse or civil partner
- You leave everything above this threshold to an exempt beneficiary, e.g, a charity
If you give away your home to your children (whether biological, adopted, foster or step) or to your grandchildren your threshold can increase to £500,000
If the value of your estate is more than £325,000, the part of your estate above this amount could be liable for a 40% IHT. In last month’s Budget, the chancellor announced that this £325,000 nil-rate threshold will remain in place until 2030.
Changes Affecting Farmers
One change that was announced was that from April 2026, IHT will now be payable for the first time on inherited agricultural assets worth more than £1 million.
Like the rest of the population, no IHT will be payable on the first £325,000 above that limit, which means the untaxed total will be £1.325 million. Above this limit, tax will be due at 20% (half the usual rate). This tax can be paid in instalments over a ten year period, free of interest.
This decision has faced backlash from many farmers, with the National Farmers Union President, Tom Bradshaw saying:
“The average return of working farm businesses is less than 1%. Most would be unable to meet inheritance tax charges if APR [agricultural property relief] or BPR [business property relief] was stripped away.”
“For the future of our family farms, food security and the environment we are calling on the Chancellor to urgently consider the sizable effect changes to APR and BPR could have.”
In her Autumn Budget, Chancellor Rachel Reeves stated that the measures would continue to protect small family farms:
“The latest figures show that the top 7% (the largest 117 claims) account for 40% of the total value of agricultural property relief. This costs the taxpayer £219mn. The top 2% of claims (37 claims) account for 22% of agricultural property relief, costing £119mn.
It is not fair for a very small number of claimants each year to claim such a significant amount of relief, when this money could better be used to fund our public services.”
Other Changes to Inheritance Tax in the Autumn Budget
It was also announced that inherited pensions will now be counted for IHT purposes from April 2020 and that shares listed on the Alternative Market Investment (AIM) stock exchange in estates would be taxed at 20%.
If you are concerned about how any of these changes may affect you and your finances, contact a registered, regulated financial adviser.