close
Get Started Today

Please fill out the form below and a member of our
team will be in touch with you soon.

    Tag: IHT

    Growth, credibility and survival: what’s really at stake in November’s Budget

    Posted on by Rebecca Campbell

    The run-up to any Budget inevitably brings with it a flurry of speculation and selective leaks. Often these are nothing more than flag-flying exercises so policy ideas can be floated to test the reaction of the press and public before any real decision has been taken. It seems this year is no different. What matters, however, is separating the noise from the reality: what the Chancellor can do, what she might do, and what she should do.

    Income tax remains the government’s single largest source of revenue, accounting for around 27% of receipts and 11% of national income. It is the most obvious lever for any Chancellor looking to raise funds. But the Labour Party’s manifesto pledged not to increase taxes on working people and that commitment already looks fragile. The rise in employers’ National Insurance contributions earlier this year was framed as something different, but it represented a broken promise by stealth.

    There have also been rumours of National Insurance being extended to rental income – a puzzling idea given that NIC has historically been a tax on earnings rather than investment returns. A more coherent approach might be to recognise that the tax system already differentiates between earned and unearned income. Not long ago, the basic rate was 22% on earnings and 20% on investment income. The Chancellor could revisit this structure and perhaps nudge earnings up to 21% while raising the rate on interest and rental income to 24%. Such a move would raise revenue while leaning on those with greater investment wealth, rather than purely on earned income.

    Another near certainty is the continued use of fiscal drag. By freezing thresholds in the face of inflation, the Treasury allows more taxpayers to be pulled into higher bands without the political fallout of an explicit rise in rates. But there is a real problem with the personal allowance. Left unchanged for so long, it risks dragging pensioners with only the state pension into the tax net. That would be politically toxic. I believe the Chancellor should use this Budget to raise the allowance, even modestly, to protect those on the lowest incomes.

    Inheritance Tax is always politically sensitive, but changes in the last Budget have already prompted greater use of gifting. Possible next steps include extending the seven-year survival period or introducing a US-style cap on lifetime gifts exempt from IHT. Either would be radical and controversial, so the government has to weigh the revenue benefit against the risk of alienating middle-income households who increasingly view IHT not as a tax on the wealthy, but as one on families who have worked and saved throughout their lives.

    Pensions remain a constant target for reform, and I can see three possibilities: 1) restricting or reshaping the tax-free lump sum. This would be politically explosive, given that many have planned their retirements and even final mortgage payments around this entitlement. 2) Introducing a flat rate of relief on contributions. This would simplify the system and redistribute relief away from higher earners, although at the cost of dampening incentives to save. 3) levying employers’ NIC on pension contributions. That would raise revenue, but at the expense of both businesses and employees, who ultimately share the burden. None of these options are straightforward, and each risk undermining long-term confidence in retirement saving.

    When Labour came into power, they spoke endlessly of a £22bn black hole. That narrative dominated to such an extent that it risked talking the UK economy into recession. This time around, the government has been quieter. That feels like a deliberate choice by a relatively unpopular administration which is trying to dampen expectations, avoid fuelling pessimism, and buy time. But the Chancellor cannot rely solely on delay. Her policies will only succeed if the economy grows. Growth, in turn, requires confidence and not constant tinkering. It also requires investment from both the private sector and individuals.

    When you combine all of these factors, this Budget must offer something beyond tax rises and fiscal drag. Reliefs for businesses investing in the UK, or incentives for individuals to back British companies, would send an important signal. They would, of course, cost money in the short term but would support the growth the government ultimately needs.

    I know I’m not alone in thinking this, but the decision to delay the Budget until late November may not be accidental as it gives the Chancellor more time to hope for better growth figures. If that happens then it could potentially soften the blow of whatever tough measures she feels compelled to announce.

    For now, the Chancellor faces a delicate balancing act between fiscal responsibility and political credibility, and between raising revenue and sustaining growth. Whether she succeeds will depend not only on the measures announced next month, but also on whether she can offer a clearer, and more confident vision for the economy than we have seen so far.

    It does all make you wonder whether this will be her last Budget. As we know, political cycles move quickly, and so too do ministerial careers.

    The key to successfully running a family business

    Posted on by Laura Boyd

    Running a family business can have many advantages if managed correctly and in harmony, but it can also bring many challenges which could lead to potential conflicts, affecting business performance and growth.

    One key point to consider when running a family business, is creating a clear separation between any family and business matters to avoid any issues that could affect the day to day running of the business and hinder long term business growth.

    In our recent blog, our accounting + advisory team layout some key ways to successfully create harmony when running a family business:

    Set a clear long-term vision

    Setting a clear long-term vision from the outset is essential for the success of any family business. This will help ensure your business goals are aligned, you follow a consistent strategy and therefore decisions can be made quickly and efficiently, avoiding any unnecessary conflict. By establishing a common vision, it means each family member can focus their efforts on what truly matters – ensuring the business runs smoothly and remains resilient through challenges.

    Make use of outsider expertise

    It is important to reach out for help in areas where the family don’t have expertise. Typically, this includes law and finance but often can include marketing, advertising and sales. Engaging with experts allows for different opinions and a fresh perspective that can help shape your vision and goals. It also allows for unbiased decision making that can form neutral opinions outside of your family views.

    Outline clear roles and responsibilities

    Setting clear roles and responsibilities from the outset ensures everyone understands their accountability. This helps team members focus on their own work, reduces overlap, and minimises the risk of any conflict or disputes between family members.

    Ensure that business and family matters are kept completely separate

    Although this can be difficult, especially when you spend time together both at work and outside of it, keeping any family matters separate from business matters will minimise disruption to business activities. It is important to differentiate between both family life and work in order to keep those healthy relationships.

    Succession planning

    Succession planning is a key challenge for businesses of all sizes. This process should be collaborative and transparent to build trust and continuity. It’s important for all family members within an organisation to understand each individual’s timeline for working in the business and therefore to plan who will take over their roles and responsibilities when the time comes.

    What areas of tax should you consider when handing over a family business?

    When it comes to retirement for a family business, thought should be given to ensuring any benefit from appropriate tax reliefs is obtained which could help save you a lot of money. There are various ways you can look to do this and it’s vital to understand all the options in detail before making any decisions, however some of the common considerations include:

    Capital Gains Tax (CGT)– This should be considered when passing down a business to a family member. Subject to certain conditions, CGT will not be due on a qualifying transfer made as a gift. However if these conditions are not met, CGT may be due on the value as if it were a sale at market value. There are also CGT reliefs which could be used if CGT is payable.

    Income tax – It’s important to understand how you will fund a retirement and what levels of income tax you might need to pay. This could depend on whether you retain an interest in the family business and receive dividends or a salary, verses if you were to draw on a pension.

    Inheritance Tax (IHT) – This should be considered if a business is passed onto other family members, as IHT could become due. Rules around the reliefs available for qualifying businesses are changing from 6 April 2026, so now is the time to understand what liability could become due on your estate, and whether any planning can be undertaken to reduce the exposure to IHT.

    Get in touch

    For further information or advice on how we can help you navigate the challenges that come alongside running a family business or help you to plan for the future, please get in touch with a member of the team by emailing enquiries@pmm.co.uk or calling 01254 679131.

    Autumn Budget – are property taxes in the sights of the Chancellor?

    Posted on by Rebecca Campbell

    Property tax is once again under active review by the government, with speculation in the press ranging from a new ‘mansion tax’ to more fundamental changes such as replacing stamp duty or reforming council tax. These discussions highlight both the fiscal pressures facing the Treasury and the ongoing challenge of balancing fairness, revenue generation, and housing market stability.

    Property investment under pressure

    Property investors and landlords have faced a series of tax and regulatory changes in recent years. In April 2025, stamp duty rates were increased for buy-to-let purchases, following earlier reforms to renters’ rights. At the same time, the Royal Institution of Chartered Surveyors (RICS) has reported that the availability of rental housing has declined for 11 consecutive months, a trend that risks putting further upward pressure on rents.

    Unlike trading businesses, property investors do not benefit from the same reliefs for capital gains tax (CGT) or inheritance tax (IHT), and higher debt costs receive limited offset. Taken together, these factors have reduced the attractiveness of property as an investment class.

    Proposals under discussion

    Recent reports suggest that the Treasury is examining the possibility of replacing stamp duty with a proportional property tax on homes sold for more than £500,000. Unlike the current one-off levy, which can distort behaviour around transaction thresholds, a proportional tax would rise in line with property values and affect a narrower segment of the market.

    The government are also said to be considering an overhaul of council tax, which is still based on 1991 property valuations. Proposals include a shift to a modern, valuation-based local property tax collected from owners rather than residents.

    Property-related taxes already account for around 10% of UK tax receipts, nearly double the OECD average, making them a key component of fiscal planning.

    The wider context

    The government’s room for manoeuvre is limited. Commitments from the Chancellor to not raise income tax, VAT, or national insurance have shifted attention towards property as a more politically viable tax base. At the same time, a fiscal gap estimated at £40 billion has increased pressure to identify reliable revenue streams.

    Speak to an adviser

    Property taxation is likely to remain at the centre of fiscal policy debates in the months ahead. While the government is exploring reforms intended to improve fairness and stability, the challenge will be implementing changes without discouraging investment or further reducing housing supply.

    For landlords, investors, and businesses with property interests, the Autumn Budget could bring significant changes. Now is the time to review ownership structures, financing arrangements, and succession planning, so you are prepared to adapt quickly if reforms are announced. Speaking with your adviser early can help identify opportunities and mitigate risks in what remains a fast-moving tax landscape. Get in touch with property tax expert, Jonathan Cunningham, by clicking the link below.

    Inheritance Tax reform: key changes in the draft Finance Act 2025/26

    Posted on by Rebecca Campbell

    On 21 July 2025, the government published the first draft of the Finance Act 2025/26 which contains the draft legislation around IHT and the new rules around Business Property Relief (BPR) and Agricultural Property Relief (APR). Tax partner, Roger Phillips, explains more in our latest blog…

    Key highlights

    The draft legislation is largely as expected – albeit with two changes….

    1. The £1 million allowance will be indexed

    The standout announcement is that the new £1 million allowance for BPR and APR will now be indexed by inflation from 6 April 2030. This aligns with the expected uplift in the general IHT nil-rate bands – namely, the standard nil rate band and the residence nil rate band from that date.

    1. Anti-fragmentation rules will no longer take effect

    The anti-fragmentation rules that were expected to be brought in to deter individuals setting up multiple trusts to access greater levels of minority discount, will not take effect.

    However, where multiple trusts are set up by the same person, they will share a £1m allowance between them, and this will be allocated chronologically i.e. earlier trusts effectively getting the allowance before later ones.

    The thinking behind this is that if someone had instead made a gift to multiple individuals, then those gifts would get the benefit of minority discounts, and therefore if someone wished to gift by way of a transfer to a trust, rather than directly, then it would be discriminatory for there to be different treatment.

    HMRC consider that the sharing of the £1m between trusts should be sufficient to dissuade multiple trusts.

    They may well be right – and my view would be that if people did look to set up multiple trusts, then HMRC would likely pore over the terms of those trusts in the event that significant discounts were being sought – as if the terms were similar, a challenge under the general anti-abuse rule (also known as the “GAAR”) – would not be out of the question.

    HMRC’s stance on the reforms

    The government has justified these reforms on the basis that they will modernise and simplify BPR and APR while improving fairness in the system. The full policy paper outlines these objectives in greater detail, and it’s worth noting that the majority of the previously proposed changes remain intact in this first draft.

    What does this mean for families and trustees?

    With a firm implementation date of 6 April 2026, the clock is now ticking.

    Families, trustees, and business owners should urgently review their estate planning strategies and ownership structures to ensure they are well-positioned under the new rules.

    In particular, for those looking to make gifts into trust, there is a window between now and 5 April 2026 where there is more flexibility for planning.

    Final thoughts

    The BPR and APR changes are coming in from 6 April 2026, broadly as expected, therefore it is more important than ever that families speak with their advisers now to determine whether they should be reviewing their ownership structures before April 2026.

    Inheritance Tax receipts surge to £800 million in April 2025

    Posted on by Rebecca Campbell

    HMRC reported that Inheritance Tax (IHT) receipts reached £800 million in April 2025—a £97 million increase compared to April 2024. This is the second-highest monthly total on record and continues a long-term trend of rising IHT revenues. The growth is driven by frozen tax thresholds, rising asset values, and legislative reforms broadening the IHT net.

    The Office for Budget Responsibility (OBR) estimates that IHT receipts will exceed £9 billion in 2025/26, up from £8.2 billion in 2024/25. By 2030, nearly 1 in 10 estates are projected to fall within the IHT threshold.

    Tax partner Roger Phillips explains more…

    Understanding the rise in IHT Receipts

    Inheritance Tax is charged at 40% on the portion of an estate exceeding certain thresholds. Several trends and policy decisions are fuelling the recent increases:

    1. Rising property values
      Property price inflation—especially in London and the South East—means even modest homes now breach the nil-rate band (£325,000), pushing more estates into the IHT net.
    2. Frozen thresholds until 2030
      Both the nil-rate band (NRB) and the residence nil-rate band (RNRB) remain frozen at £325,000 and £175,000 respectively until April 2030. This long-term freeze effectively pulls more estates into IHT liability through fiscal drag.
    3. Major legislative changes announced in the 2024 Autumn Budget
    • Business and Agricultural Relief caps (from April 2026): reliefs for business and agricultural property will be capped at £1 million each and any value above this cap will attract only 50% relief. This marks a significant shift, particularly for estates involving farms or private businesses, which could now face substantially higher IHT bills.
    • Pension death benefits (from April 2027): undrawn pension funds and death benefits will be included in the deceased’s taxable estate—potentially increasing many families’ IHT exposure.
    • Non-dom regime changes (from April 2025): The abolishment of the non-dom regime and replacement with a residence-based system is set to bring more individuals within the UK IHT scope.

    Next Steps: how can families respond?

    With more estates falling into the IHT bracket, proactive and timely estate planning has never been more critical. Key steps you can take include:

    • Make use of allowances and reliefs
      Various allowances and reliefs can reduce your IHT liability, including the annual gift exemption (£3,000 per year) and reliefs for gifts made out of surplus income.
    • Lifetime gifting
      Gifts made during your lifetime beyond the annual exemption can start the required seven-year clock. Gifts to registered charities are usually exempt from IHT, which can help reduce the overall taxable value of your estate.
    • Utilise trusts
      Establishing trusts can be a strategic way to pass assets to beneficiaries while minimising IHT. Trusts also offer control over how and when assets are distributed and can provide tax advantages. If trust planning is being considered, it may well be sensible to have completed this before 6 April 2026, before the rules change, as currently there may be the possibility to make transfers of business property into trust before then, without incurring significant tax charges. Advice should always be sought.
    • Review your will regularly
      Ensure your will reflects your current financial situation and estate planning goals. This helps ensure your assets are distributed according to your wishes while taking advantage of available reliefs.
    • Take early action
      Following the 2024 Autumn Budget announcements, many families will need to rethink their succession planning strategies. Given the impending changes, a proactive approach is vital. Reviewing asset values and understanding the IHT implications under the new rules is an important first step. This may involve restructuring ownership, exploring trusts, or other tax-efficient vehicles to manage potential liabilities.
    • Obtain professional advice
      Given the complexity of these rule changes and looming reforms, expert tax and estate planning advice is essential to build a robust strategy tailored to your circumstances. Working closely with a tax adviser can help optimise asset allocation, utilise alternative reliefs, and establish succession structures that minimise tax impact on business continuity and family legacies.

    Get in touch

    The sharp rise in IHT receipts signals that is time for families to act sooner rather than later. With significant changes on the horizon, proactive planning today can mean substantial tax savings in the future.

    If you’d like to discuss your personal circumstances and how these changes might affect you, get in touch with Roger Phillips by clicking the button below.

     

    Autumn Budget 2024 – understanding the impact of IHT changes on family businesses and farms

    Posted on by Laura Boyd

    We sat down with PM+M tax partners, Roger Phillips and Wendy Anderson, to find out more about the inheritance tax (IHT) changes announced in the Autumn Budget on 30 October 2024, with a focus on Business Property Relief (BPR) and Agricultural Property Relief (APR), and what those changes are likely to mean, in particular, for families with businesses and farms….

    Changes to APR and BPR and the effect on family businesses

    First up, we were joined by Roger, who answered some questions on the changes to APR and BPR.

    Roger explains what the Chancellor’s announcements mean for family businesses.

    Can you summarise the changes that the Chancellor made to BPR and APR in the Budget on 30 October?

    “The Chancellor announced significant changes to BPR and APR, which will, in the main, take effect from 6 April 2026.

    The effect of BPR is that is has always applied to give tax relief on death in relation to certain types of “business assets,” including shares in family companies and assets used by sole traders or partnerships, giving relief of up to 100% in the death estate. What that means in simple terms is that if you held shares in the family trading company, you could die whilst holding those shares – whatever their value – and their value shouldn’t attract an IHT charge.

    APR applies in a similar way – typically to farms and farmland which are either owner occupied by the farmer themself, or where they are let to tenant farmers. APR works by removing the “agricultural value” of the farm from the estate when working out the IHT.

    These reliefs have been available for decades and have operated to ensure that family farms and businesses can be passed down the generations, without triggering punitive IHT charges that could otherwise cause families to have had to sell those assets, to generate some money to pay the taxman.

    The new rules effectively tear up the rulebook that everyone has become so used to. Now, individuals will be entitled to a £1 million allowance on their combined APR and BPR assets at death and any value over and above that allowance is then potentially subject to IHT.

    Assets falling within the £1m threshold at death will be entitled to 100% relief (BPR and APR – although there is only one allowance per person) and the balance of value attributable to any BPR/APR qualifying assets that aren’t sheltered by the £1m will then receive only 50% relief.

    IHT will then be applied to that remaining 50% at the normal 40% rate – and that will therefore mean an IHT rate of 20% on that proportion of the assets.”

    What will this mean practically for family businesses?

    “For family businesses, these changes are likely to lead to a IHT bills where the values of the business assets exceed £1m (assuming their other allowances have been used up already).

    IHT is payable within 6 months of the death, and therefore families will have to find this money to fund the tax. In addition, it may well be the case in some circumstances that income tax charges could be triggered as part and parcel of families accessing these funds to pay the taxman.

    In many cases it will be possible to pay the tax in 10 equal annual instalments, although this isn’t a perfect solution.

    Many family businesses have relied on BPR to pass shares down without triggering IHT and there are many elderly shareholders now in a position where they will not know what the most sensible thing to do is.

    They have been holding onto shares, thinking they were safe in the knowledge that they could pass the shares onto their children without IHT. This has changed completely.

    Family businesses may want to consider strategic steps such as early gifting to move value out of the estate, or to access other individual’s £1m allowances, creating family trusts, or restructuring ownership to minimise IHT exposure, with a view to safeguarding the family’s long-term business interests.

    If gifts are being made, then CGT always needs to be considered. Term insurance might also need to be considered as a means to generate some cash to pay tax on gifts that aren’t survived by 7 years.

    This all needs careful thinking through – and every family’s circumstances will differ.

    As well as tax, there will be commercial and family considerations to think about.

    Is it sensible for a 20-something year old – who may get married – then may get divorced – to receive and hold valuable shares in the family company?

    Trusts may offer some protection against this, but post April 2026, there will be a cost to transferring shares into trust where their value is high. Up until now, trusts have offered a genuine solution as a means of protecting assets for families.

    There might still be a window of opportunity here to undertake some planning until the rules come into effect fully.

    Business owners should also be having their wills reviewed to make sure they are as tax efficiently drafted as possible. This is important because the £1m allowance is not likely to be transferable to a spouse – unlike the nil-rate band – and therefore families should ensure their affairs are structured as to maximise availability of the new reliefs.”

    Is it as simple as giving my shares away in the family company now?

    “No.  Each case is different. Ages of shareholders and family dynamics will all need to be thought about carefully in the context of gifting.

    A gift of shares made now will only fall to be treated under the old rules – meaning full IHT relief – if the donor dies before 6 April 2026.

    A gift now would fall under the new rules – i.e. partial relief – if the donor passes away after on or after 6 April 2026 and within seven years of the gift having been made, where that gift has been made on or after Budget day.”

    I have already made some gifts during my lifetime – how are these impacted by the new rules?

    “According to the limited guidance that the government has issued, it appears that pre-Budget day gifts will generally still be subject to the old rules if the donor were to pass away within seven years after having made a gift – even if this death takes place after 6 April 2026.

    There’s therefore some protection for those that made gifts before the Budget.”

    Are there likely to be further changes to IHT in future Budgets?

    “There could well be. We are likely to see more in the way of gifting, with families hoping that gifts can be survived 7 years so that they drop out of the donor’s estate.

    The next step could be for the 7 year rule to be looked at – and you could envisage them extending it to try to collect some more tax.”

    What should I do next?

    Do not rush into anything yet – speak to us in the first instance.

    The government have only, at this stage, released some relatively scant guidance. More detailed information is set to follow in the early new year – and hopefully we will receive some draft legislation in the not-too-distant future.

    I would suggest some early conversations with your tax adviser/lawyers would be sensible, with more detailed guidance being sought once we have a bit more clarity, before deciding what, if anything, you should do.”

    How will changes to BPR and APR affect farmers?

    Next up, we are joined by partner, Wendy Anderson, who focuses on how the Budget announcements could affect farmers…

    Can you explain how a typical farmer might be impacted by these changes?

    For farmers, these changes could mean a reduced relief on larger agricultural estates – including farms and landed estates.

    Currently, most farmed agricultural land can qualify for 100% APR if certain conditions are met. Some farmland qualifies for relief at a reduced 50% rate.

    Under the new rules, the first £1 million of agricultural value will qualify for 100% APR, and any value beyond that will be relieved at 50% – in the same way as for BPR.

    This change could impact farmers whose land value significantly exceeds the £1 million threshold, possibly leading to IHT liabilities at death from 6 April 2026 onwards.

    If you think of a typical 200 acre farm, made up of agricultural land with a value at £10k per acre – that’s £2m of value. Assuming there’s a house and some other assets in the estate, there will be IHT to pay on death.

    Should I consider giving my farm away now?

    Transferring assets now may not necessarily be the best solution. Each case needs careful thought and there might be some alternative options worth exploring.

    Each individual situation is unique, so I would recommend getting in touch with your PM+M tax adviser to discuss your circumstances in more detail before acting.

    Are trusts impacted by these new changes?

    Yes, trusts are impacted. Trusts pay IHT every 10 years – currently at up to 6% of the value of the assets in the trust. Although where those assets qualify for BPR/APR, they, until now, have typically not been subject to this charge. From 6 April 2026, this will change and trusts will be subject to the new rules around APR/BPR.

    Existing trusts that were set up before 30 October 2024 will have their own £1 million allowance to use against BPR/APR property when calculating the 10 year charge, whilst “new” trusts established on or after Budget day will share a single £1 million allowance if they have been created by the same person.

    It’s not completely clear how trusts will be affected for value over the £1m – it is likely that a 3% effective rate will apply every 10 years to BPR/APR property in excess of the £1m – although we need more guidance from the government on that.

    Under the old rules, some of my farm qualified for 100% APR and some qualified for 50% – will these differences still be recognised by the new rules?  

    Yes, the distinctions in relief percentages will largely be retained under the new rules.

    Agricultural assets currently qualifying for 100% APR will remain eligible for full relief up to the £1 million threshold. Assets previously receiving 50% APR or BPR will continue to be treated as 50% relieved and will not fall into the new £1 million allowance.

    How much detail do we actually have at this stage?

    Whilst the government has provided the basic framework, we are still awaiting some specific detail.

    For example, there are questions regarding the ‘refreshing’ of the £1 million allowance, how reliefs will be apportioned between APR and BPR, and the exact application of these rules to trusts.

    The consultation in early 2025 is expected to clarify these points.

    Could Labour U-Turn on this?

    In theory, yes.

    Farmers are sometimes referred to as asset rich and cash poor. For larger farms that aren’t covered by the £1m allowance, and the normal nil rate bands (which for a husband and wife can give another £1m of allowance), IHT will need to be paid within 6 months of death.

    Finding that cash may be a challenge – particularly if it has to be extracted from a company – in which case there would be associated income tax charges. The IHT can be paid in 10 equal instalments, but clearly that’s not a perfect situation.

    The income tax point might be moot if farmers have to sell land to generate cash, just to pay the IHT.

    Farmers are worried, and very vocal about this. I suspect if there are to be any “U turns” in relation to this Budget, then the “Tractor Tax” might be the one which is reconsidered. It will unlikely be a complete U turn – but there might be some additional protections built into the new rules.

    Get in touch

    If you’re concerned about how the recent changes to BPR or APR could impact your family business or farm, now is the time to start planning.

    Reach out to our experienced tax advisers at PM+M to discuss your options and ensure your succession planning is robust enough to minimise the potential IHT burden.

    Roger Phillips – roger.phillips@pmm.co.uk

    01254 604337

    07719 020342

    Wendy Anderson – wendy.anderson@pmm.co.uk

    01254 604304

    07384 257578

    Autumn Budget 2024: Inheritance tax reforms and their impact on businesses and agricultural succession

    Posted on by Rebecca Campbell

    The latest Autumn Budget (30/10/24) announcements have introduced significant changes to Inheritance Tax (IHT), particularly affecting Business Property Relief (BPR) and Agricultural Property Relief (APR). From 6 April 2026 both APR and BPR will be subject to a combined £1 million limit. This means farmers and  business owners face capped reliefs on agricultural and business property and will be subject to an effective 20% inheritance tax rate over the £1 million threshold from 2026.

    Key changes

    APR currently allows a person to pass on the agricultural value of some property in the UK free of IHT. This includes land or pasture used to grow crops or rear animals and farm buildings where all of the conditions are met.

    Assets that may qualify for BPR include: a business or an interest in a business; land, buildings or machinery used in a business; and shares in an unlisted company. Where BPR is available, the value of an asset can be reduced by 50% or 100% when working out the IHT due.

    However, at the recent Autumn Budget, it was announced that the government will reform APR and BPR from 6 April 2026. The 100% rate of relief will continue for the first £1m of combined agricultural and business property, falling to 50% thereafter.

    The rate of BPR will also fall to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM.

    Example:

    A family farm valued at £6 million, previously transferable tax-free upon the farmer’s death, will now incur a £1,000,000 tax liability.

    The reduction in BPR and APR will be acutely felt by business owners during transitions, especially in the circumstances of an unexpected death of the owner or a major shareholder.

    This change will also affect assets qualifying for APR and BPR which have previously been placed into trusts for asset protection and family wealth planning.

    Reduced reliefs may result in immediate tax liabilities which are payable within 6 months of death or a qualifying chargeable event for a trust, potentially forcing asset sales or diverting funds needed for business operations. This financial strain can be particularly destabilising in rural and farming communities, where significant asset values are tied up in land and infrastructure and therefore difficult to liquidate to provide the funds necessary to pay the IHT.

    Plan ahead

    With the new Budget announcements, many families will need to rethink their succession planning strategies to maintain their land and operations and, given the impending changes, it is crucial that they take a proactive approach to succession planning. Reviewing asset values and understanding the IHT implications under the new rules is an important first step. This may involve restructuring ownership, exploring trusts, or other tax-efficient vehicles to manage potential liabilities.

    Working closely with an accountant can provide tailored strategies that address each business’s unique circumstances. Effective planning, whether through optimised asset allocation, alternative reliefs, or succession structures, is key to minimising the tax impact on business continuity and family legacies.

    Contact us

    The upcoming changes to IHT represent a significant shift in how business and agricultural assets are taxed upon inheritance. The 2026 implementation date may feel like some time away and the Government is yet to publish its detailed technical advice in respect of this announcement, but the need to take action starts now to preserve financial stability.

    Now is the time to engage with experts, secure the right policies, and take the necessary steps to protect your business’s future. Contact Jayne O’Boyle ( jayne.oboyle@pmm.co.uk) or Jonathan Cunningham (jonathan.cunningham@pmm.co.uk) or call 01254 679131 for more information and guidance.

    Autumn Budget 2024 – the future of inheritance tax

    Posted on by Laura Boyd

    The future of inheritance tax has been a hot political debate in recent years. Before the general election in July this year, there were discussions of a potential reform or even abolishment under the Conservative government. However, following Labour’s landslide victory, IHT increases could be on the horizon.

    The latest figures for the 2021/22 tax year show that IHT receipts are on the rise – nearing £6billion annually, with 800 additional estates becoming liable for IHT in that period (a 3% increase on the previous year). In real terms, this means that 634,000 estates paid no IHT at all, with only 4% of deaths resulting in IHT being owed in 2021/22. Will the rumoured changes mean more people are caught by the IHT net?

    Wendy Anderson, PM+M partner, explains the current IHT rules, what could change, and most importantly, how you can prepare…

    The current IHT rules

    Exemptions and allowances for estates have largely remained the same over the past two decades with the main Nil Rate Band (NRB) frozen at £325,000 since 2009. The introduction of the Residence Nil Rate Band (RNRB) has provided some relief, raising the exemption to £1million per couple for estates that include a primary residence passed on to their children, however, the additional relief is reduced when an estate’s value exceeds £2million.

    The most significant reliefs continue to be for assets left to a surviving spouse (£15.5 billion in 2021/22) and Business and Agricultural Reliefs (£4.4 billion).

    Charitable donations, whether made during a person’s lifetime and at death, are also exempt from IHT. Individuals who leave 10% of their net estate to charity in their will benefit from a reduced IHT rate of 36%.

    What could change?

    Are major changes on the way? With any new government, there is always potential for fiscal reform, and with a £22billion deficit to be addressed – it is likely that we will see changes to capital taxes, including IHT.

    • Business Relief (BR) and Agricultural Relief (AR) – currently, BR lets shareholders in trading companies and business owners avoid paying IHT on the value of their business assets when they are passed on after death or put into a trust. Similarly, AR reduces the IHT burden for farming businesses, making it easier to pass them down through generations. However, BR also covers some investments, like shares listed on AIM. The government could change the rules to limit the types of assets that get full relief, which could increase IHT payments. Stricter criteria for AR could also be introduced, limiting when it can be claimed. There may also be more scrutiny of business assets which aren’t directly involved in trading.
    • Capital Gains Tax (CGT) probate uplift – when assets qualifying for BR or AR are inherited, they also benefit from a CGT uplift to their market value at the date of death. This means that beneficiaries inherit assets with no IHT due and an increased CGT base cost. If these assets are sold shortly after death, the higher base cost often results in little to no CGT being payable. The Chancellor may consider limiting this CGT uplift for non-business assets, ensuring that it only applies in cases where there is no corresponding IHT relief.
    • Pensions and inheritance – pension assets are typically excluded from an individual’s estate for IHT purposes, meaning the value can pass free of IHT upon death. The Chancellor may consider including pension values in the estate for IHT calculations, which would subject them to a 40% tax at death. Currently, if someone over the age of 75 passes away, their beneficiaries face an income tax charge on pension withdrawals. No such charge applies if the pension holder dies before age 75. If pensions are brought into the IHT net, there is a risk of double taxation—both IHT on death and income tax on pension withdrawals—unless the income tax charge is eliminated as part of the reform.
    • Trusts – currently, assets of up to £325,000 can be transferred into a trust every seven years without incurring IHT. For amounts above this threshold, a lifetime IHT charge of 20% applies. Every 10 years, trusts are subject to a maximum 6% IHT charge on assets exceeding the £325,000 threshold. The Chancellor may choose to increase the IHT burden on trusts by either imposing a 20% charge on transfers without considering the nil-rate band, or by raising the periodic charges above 6%.

    How can I prepare?

    If IHT reforms are announced in the Autumn Budget next month, they could be implemented quickly, potentially affecting your financial plans. The good news is, you still have time to act and take advantage of the current tax reliefs, allowances, and rates before any new rules come into force.

    Whether you hold shares, are thinking of gifting assets, or considering setting up a trust, there are strategic steps you can take to protect your wealth from future tax increases. By being proactive now, you can make the most of the benefits that exist under the current framework.

    Unsure if you need to act? If you answer ‘yes’ to any of the below questions, we recommend getting in touch and speaking to a PM+M tax adviser to discuss your specific circumstances in more detail.

    • Do you hold unquoted trading company shares?
    • Do you hold quoted shares?
    • Have you previously transferred rental properties into a trust?
    • Are you thinking about setting up trusts and transferring assets?
    • Are you planning to gift assets to your family?
    • Have you used your inheritance tax annual exemptions?
    • Do you own land used for agricultural purposes?

    This list isn’t exhaustive – if you are concerned about how the upcoming Budget announcements could affect you – we would be happy to arrange a chat to discuss your situation in more detail. Contact Wendy Anderson by clicking the button below.

    Stay tuned to the PM+M website and social media channels to keep up to date with the latest Budget news, as and when it happens.

    IHT receipts reach £2.1bn between April and June – what does this mean for you?

    Posted on by Rebecca Campbell

    HMRC has released data showing that inheritance tax (IHT) receipts reached £2.1 billion between April and June 2024. This significant figure has implications for many UK families – what does this rise in IHT receipts mean for you?

    Understanding the rise in IHT receipts

    Inheritance tax is a levy on the estate (property, money, and possessions) of someone who has died. The standard IHT rate is 40% on anything above the £325,000 threshold (known as the nil-rate band). Several factors contribute to the rise in IHT receipts:

    1. Increasing property values: the continuous rise in property prices has pushed more estates above the IHT threshold. Even modest family homes in certain parts of the UK can easily surpass the nil-rate band, leading to higher tax liabilities.
    2. Static thresholds: the IHT threshold has remained frozen since 2009 and will currently remain so till 2028 at the earliest, meaning that more estates fall into the taxable category as inflation and asset values increase.
    3. Legislative changes: recent changes in tax policies, such as the introduction of the Residence Nil-Rate Band (RNRB), while offering some relief, still leaves many estates liable for substantial IHT, especially for those not meeting the conditions for the additional allowance.

    What are the implications for UK families?

    The rise in IHT receipts indicates that more families are affected by inheritance tax than ever before – meaning proactive estate planning is more important than ever. Without proper planning, a significant portion of your estate could go to HMRC, rather than your loved ones.

    We have highlighted various ways you could potentially reduce your IHT liability:

    • Make use of allowances and reliefs: there are various allowances and reliefs available that can reduce your IHT liability. These include the annual gift exemption, which allows you to gift up to £3,000 per year without incurring IHT, and the inheritance tax reliefs for gifts made out of surplus income.
    • Consider lifetime gifts: gifts made during your lifetime not falling within the annual exemption limit can set the required 7 year clock running. Additionally, gifts to charities are usually exempt from IHT, which can help reduce the overall taxable value of your estate.
    • Utilise trusts: establishing trusts can be a strategic way to pass assets on to beneficiaries while minimising IHT. Trusts can be used to control how and when assets are distributed and can also offer potential tax advantages.
    • Review your will regularly: Regularly updating your will ensures that it reflects your current financial situation and estate planning goals. This can help ensure that your assets are distributed according to your wishes whilst taking advantage of available tax reliefs.
    • Seek professional advice: Given the complexities of IHT legislation and estate planning, consulting with a tax adviser can provide valuable insights and strategies tailored to your individual circumstances.

    Planning for the future

    The rise in IHT receipts is a clear signal for to reassess your estate planning strategies. As tax advisers, we are here to help you navigate these complexities and ensure that your assets are passed on to your loved ones with minimal tax liabilities.

    Stay informed, plan ahead, and seek professional advice to ensure your legacy is preserved for your loved ones.

    If you haven’t reviewed your estate plan recently, now is the time to do so. With proper planning and professional guidance, you can take steps to protect your estate from substantial inheritance tax charges. Contact us today, by emailing enquiries@pmm.co.uk,  to discuss how we can help you plan effectively and secure your family’s financial future.

     

     

    Changes to income tax charges for trusts and estates now in force

    Posted on by Laura Boyd

    The 2023 Spring Budget introduced changes affecting the way trusts and estates are charged to income tax – and they came into force last month, effective from 6 April 2024.

    In our latest blog, tax partner, Wendy Anderson, explains what these changes mean…

    What are the changes?

    Trusts and estates with income of £500 or under, from interest, dividends or rent, will not have to file a return from 2024/25 onwards. The tax liability of trustees and personal representatives in such cases will be considered nil.

    For trusts and estates with incomes exceeding £500 from all sources, the entire income will be subject to taxation at the ‘basic rate’ in the case of an estate, or at the ‘rate applicable to trusts’ for trustees.

    The £500 limit is reduced proportionally where a settlor has established more than one trust to a minimum of £100 per trust, but this excludes interest in possession trusts, settlor interested trusts, vulnerable beneficiary trusts and heritage maintenance trusts.

    This reform supersedes the previous concession for estates which meant that if the sole income was interest, and the tax due totalled less than £100 (i.e. less than £500 of interest income per year), then no tax was reportable or payable. The ‘starting rate band’ for trusts, allowing the initial £1,000 of trust income to be taxed at basic rates rather than the rate applicable to trusts, will also be abolished.

    Beneficiaries of an estate are also affected by the recent changes where the income is below the £500 limit. In this case, the ‘net income’ of a UK estate is treated as £nil and therefore is not chargeable in the hands of the beneficiary when distributed from the estate.

    However, it’s important to note that for trusts, the exemption does not override or replace the tax credit and tax pool charge associated with discretionary income distributions. Trustees will therefore still need to pay sufficient tax to frank an income distribution (currently 45%).

    Are there any other changes on the horizon?

    HMRC have hinted at their intention to make changes to Inheritance Tax (IHT) regulations to remove non-taxpaying trusts from reporting requirements. If this was to go ahead, it would be a welcome change for many trusts that, despite there being no IHT due on an exit or 10 year anniversary, are still required to submit a return because the value of their assets exceeds 80% of the available nil rate band.

    However, we haven’t heard any further detail on these proposals, and with rumours of IHT being scrapped altogether, it may mean these changes are not implemented.

    We will keep you updated as and when further information is provided by HMRC.

    Get in touch

    If you are concerned about the changes to income tax charges for trusts and estates or would like to speak about your personal circumstances in more detail, please contact Wendy Anderson by clicking the button below.

    Goodbye to inheritance tax?

    Posted on by Rebecca Campbell

    It was reported in July that the government was discussing the possibility of abolishing inheritance tax (IHT), and there are now rumours that the 2024 Spring Budget will include a reduction to the 40% IHT rate, before an ultimate future abolishment.

    IHT is currently charged at a rate of 40% on estates worth more than £325,000, with a further £175,000 allowance which can be set against the value of the main residence if the property is inherited by descendants. As both allowances are shared between spouses / civil partners, there is a potential family exemption of £1 million.

    Due to this, only around 4% of estates pay the tax, even though a combination of frozen allowances and higher property values has brought more estates into the IHT net.

    Why is the change needed?

    The common argument is that, given investments are usually paid for out of taxed income, IHT is seen as a double charge to tax, preventing individuals passing on their wealth to any children or grandchildren. This is because:

    • IHT applies to virtually all assets, without the exemptions given for capital gains tax e.g., for a main residence
    • IHT is mainly paid by the wealthy, but the very rich have far more scope for reducing their overall IHT burden by making lifetime gifts, utilising trusts, plus much more. The moderately wealthy, where a main residence accounts for the majority of the wealth, may not be able to afford similar tax planning

    How likely is the abolition of IHT?

    Full abolition of IHT is almost certainly going to be too costly to the government in the current climate – a £7 billion loss of annual tax revenue – at a time when HMRC are on course to have a record-breaking year from IHT receipts.

    However, a rate reduction of a percentage point or two cannot be ruled out, but whether this will be in the upcoming Spring Budget as reported remains to be seen.

    The forthcoming general election also raises questions on the reported IHT reductions, as a Labour government would likely move in the opposite direction and cut IHT allowances, namely the £175,000 main residence allowance.

    Get in touch

    As we await further confirmation on the future of inheritance tax, if you are concerned your estate may become liable for the tax, there are measures you can take. Get in touch with a member of the PM+M tax team to discuss the tax planning opportunities available to ensure you are paying the right amount of tax, and no more. Email enquiries@pmm.co.uk, and a member of the team will get back to you for a confidential chat.

    Inheritance Tax receipts rise

    Posted on by Laura Boyd

    HMRC has announced record receipts from inheritance tax (IHT) during the period April 2021 to March 2022 – a total of £6.1 billion, nearly a 13% increase on the same period a year earlier.

    Receipts are likely to continue to rise for the foreseeable future due to the freeze on IHT thresholds until 2026, rising inflation, and continuing increases in property prices bringing an increasing number of estates above the threshold.

    The Office for Budget Responsibility estimates that IHT receipts will increase by a further 36% to £8.3bn by 2026/27 and more individuals will be caught by IHT in the coming years.

    What can be done?

    The most important step that individuals can take is to review their assets, consider what lifetime planning is appropriate, review the structure of their wills, and take appropriate advice on with tailored planning to their own circumstances. The UK IHT system offers a few ways that may prevent individuals from suffering large IHT liabilities on death, some of the key options and reliefs include the following:

    • Transferable nil rate band – where a married couple leave everything to each other in their wills it is now, not only exempt from IHT but it means they have not used their own nil rate band and it can be transferred to their surviving spouse or civil partner., it may be possible to claim a total nil rate band allowance of up to £650,000.
    • Residence nil rate band – this acts as a top-up to the current IHT NRB (2021/22 – £325,000) and works in a similar manner by reducing the value of your estate that is subject to IHT at the full rate of 40%, and at the current rate gives each person an extra IHT free allowance of £175,000, provided that certain conditions regarding how their main residence is inherited are met. In particular, this only applies in full if your estate is under £2m on death. This allowance can also be ‘inherited’ between spouses, giving a maximum of £350,000 per couple
    • Downsizing allowance – this allows the residence nil rate band allowance to be claimed in certain circumstances where the person who has died downsized (reducing the value of their property) or moved into a care home before their death.
    • Business property relief – ownership of part of a trading business, or shares in certain unlisted companies, may qualify for 100% relief from IHT, but they must have been owned for at least two years before death.
    • Gifting assets – making a gift to your family and friends while you’re alive can be a good way to reduce the value of your estate for IHT purposes and benefit your loved ones immediately, for capital gifts you must survive for at least 7 years after gifting to avoid the IHT.
    • Gifting income – making regular gifts from your surplus income takes those funds immediately out of IHT and can be a valuable way of stopping your estate increasing in value.

    Even after death, it can be possible to mitigate IHT by entering into a Deed of Variation (within two years of death), a legal tool which can be used by any adult beneficiary, regardless of whether an inheritance is left in a will or through intestacy, family members should be aware of this and take early advice during the estate administration process.

    What next?

    Careful advanced planning and structuring of your estate can not only help to reduce your tax liabilities, but ensure that you and your family’s financial future is safeguarded. To discuss your estate planning needs in more detail please contact PM+M Managing Partner Jane Parry using the button below.