BUDGET 2024: IHT threshold freeze extended by two years to 2030

The Chancellor has confirmed in her Budget that the freeze to the inheritance tax (IHT) threshold will be extended by a further two years to 2030.

This applies to the nil-rate band at £325,000 and residence nil-rate band at £175,000, which were previously frozen by the Conservatives until 2028.

Rachel Reeves, delivering the first Budget by a Labour Government for 14 years, confirmed the freeze is one of three new changes to how IHT will be calculated.

In addition to the threshold freeze, the Chancellor also said she would close what she described a “loophole” created by the previous Government when the lifetime allowance was abolished, by bringing inherited pensions into IHT from April 2027.

This will affect uncrystallised defined contribution (DC) pensions, crystallised DC pensions not invested in annuities, and lump sum death benefits from defined benefit (DB) pensions.

The third change will also mean that from April 2026, a £1m limit will now apply jointly to the value of assets claimed under agricultural property relief (APR) and business property relief (BPR), which allow for a full exemption on IHT for qualifying agricultural land, business assets and unlisted shares.

For this, the existing full relief will apply below the £1m threshold, and a reduced 50% relief above it. BPR on AIM shares will also be reduced to 50% and will not count towards the cap on the full relief.

Reeves said the IHT changes would raise over £2bn by the end of the forecast period set out in her Budget.

Head of advice at abrdn Financial Planning, David Murray, said that the IHT changes would add a “new complexity to estate planning” and a “higher tax bill for many”.

“While these measures were an obvious target for the Government, it raises concerns, particularly for those who have invested heavily into pensions to benefit from the IHT perks,” Murray said.

“IHT sparks strong feelings, and I’d always welcome ways to simplify the system. While we want to close potential loopholes in the rules, we also want to avoid unfairly penalising people with unexpected taxes.”

Commenting on the pension adaption to IHT rules, financial planning partner at Evelyn Partners, Gary Smith, added: “Retirees and savers have 18 months to review their long-term plans. As defined contribution pension funds could now be subject to up to 40% IHT on death, we will probably see greater withdrawals from pension pots.

“Pension withdrawals are subject to income tax, so some savers in drawdown will have an eye on the frozen £50,270 threshold at which point their overall income from all sources will be taxed at 40%.”



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