15 April 2025
As the threshold for taxable estates remains unchanged, and more asset types are brought into the scope of IHT, proactive planning through lifetime gifting is becoming an increasingly vital strategy.
In this article, we explore how strategic gifting during your lifetime can help reduce the impact of IHT and how the recent budget announcements may affect your estate planning decisions.
Key Inheritance Tax Changes from the Autumn Budget 2024
1. Nil-Rate Band Frozen Until 2030
The IHT threshold, known as the nil-rate band, remains at £325,000 and has now been frozen until 2030. Estates exceeding this amount will continue to be taxed at 40%, increasing the importance of managing estate values through effective planning.
2. Unused Pensions to be Included in Estates from 2027
From April 2027, unused pension funds will no longer be excluded from the estate for IHT purposes. This change may significantly affect those who have relied on pensions as a tax-efficient way to pass on wealth.
3. Agricultural and Business Property Relief Adjusted
From April 2026, agricultural and business assets exceeding £1 million will see relief reduced from 100% to 50%, meaning those excess assets will now attract IHT at 20%. This is a critical change for farmers and business owners planning to pass down assets.
4. Residency-Based IHT for Former 'Non-Doms'
The abolition of the non-domiciled status introduces a residency-based test. Anyone resident in the UK for at least 10 out of the past 20 years will now have their worldwide assets subject to UK IHT. Offshore trusts may also be affected, with previously excluded assets potentially becoming taxable.
Using Lifetime Gifting to Reduce IHT Exposure
Strategic gifting is a well-established and effective method for reducing the size of your taxable estate. When done correctly, it can significantly mitigate the impact of IHT. Here are the key rules and considerations:
The Seven-Year Rule (Taper Relief)
Gifts made more than seven years before death are generally exempt from IHT. These are known as Potentially Exempt Transfers (PETs). To qualify:
Gifts with Reservation of Benefit
If the donor retains a benefit from the gift—such as continuing to live in a home given to children rent-free—it will be considered a gift with reservation and will be included in the estate for IHT purposes.
Annual Gift Allowances
In addition to PETs, the following annual exemptions apply:
Charitable Donations
Gifts to registered charities are exempt from IHT, both during your lifetime and upon death. Furthermore, leaving at least 10% of your estate to charity can reduce the IHT rate on the rest of your estate from 40% to 36%.
Adapting Your Estate Plan Post-Budget
The fundamentals of lifetime gifting remain unchanged, but the Autumn Budget 2024 has altered the broader tax landscape. As previously tax-efficient assets—such as pensions and offshore trusts—are brought into the IHT net, individuals may need to revisit their strategies.
Some considerations include:
Seek Specialist Legal and Financial Advice
Estate planning is complex, and the consequences of incorrect implementation can be significant. For example, gifts made without fully relinquishing benefit or incorrect use of trusts may result in unexpected IHT liabilities.
If you’re considering making lifetime gifts or restructuring your estate in light of the 2024 Budget changes, we strongly recommend seeking tailored advice from both legal and financial professionals.
Our private client team is here to guide you through these changes and help you structure your estate in a tax-efficient way that meets your long-term goals.
Get in touch with our team to discuss your estate planning strategy and how you can reduce your future IHT liability through smart, compliant lifetime gifting. Call 01202 527008 or via online: Contact Us AB Solicitors For Your Legal Needs
