With the potential changes coming to Pensions from April 2027, whereby your pension plan could become liable to inheritance tax, it is important to be aware of the inheritance tax free allowances that are available for you to use. Some of them are annual, so if you don’t use them, you lose them!
Here is a little reminder of the allowances currently available:
Nil Rate Band (NRB): £325,000 per person
Residence Nil Rate Band (RNRB): Up to £175,000 if passing a home to direct descendants.
Direct Descendants: The property must be inherited by children, grandchildren, or other direct descendants. This includes stepchildren, adopted children, and foster children.
Ownership: The deceased must have owned the property at some point. It doesn’t need to be their main residence at the time of death, but they must have lived in it at some time.
Downsizing: If the deceased sold or downsized from a more valuable home after 8 July 2015, the estate may still qualify for RNRB under the downsizing provisions.
Trusts: If the property is held in a trust, it may still qualify depending on the type of trust and the terms under which the property is held.
Transferable Allowances: Unused NRB and RNRB can be transferred to a spouse or civil partner.
Gifts Exemptions:
Gifts made more than seven years before death: Fully exempt.
Annual gift exemption: £3,000 per year, which can be carried forward one year if unused.
Small gifts: Up to £250 per person, unlimited recipients.
Wedding or civil partnership gifts: £5,000 from parents, £2,500 from grandparents, £1,000 from others.
Regular gifts out of income: Exempt if they do not affect the giver’s standard of living.
Charitable Gifts: Fully exempt and if you leave 10% of your estate to charity on death this reduces your inheritance tax rate from 40% to 36%.
Political Party Gifts: Fully exempt if the party has at least one MP elected to the House of Commons or received at least 150,000 votes in a general election
Business Relief: Up to 100% relief on qualifying business assets until the 5th of April 2026.
Agricultural Relief: Up to 100% relief on qualifying agricultural property until the 5th of April 2026.
Changes Effective from 6 April 2025:
Agricultural Property Relief (APR): The scope will extend to include land managed under environmental agreements with or on behalf of the UK government, devolved governments, public bodies, local authorities, or approved responsible bodies.
Changes Effective from 6 April 2026:
Business Relief (BR):
The 100% relief will be limited to the first £1 million of combined agricultural and business property. Above this amount, the relief will be reduced to 50%
The rate of relief for shares not listed on recognized stock exchanges will be reduced from 100% to 50% (such as Alternative investment market (aim) shares)
Agricultural Property Relief (APR):
Similar to BR, the 100% relief will apply to the first £1 million of combined agricultural and business property, with 50% relief thereafter.
The tax landscape continues to evolve and is likely to do so even more under our new Labour government. It is therefore imperative that you keep abreast of the current and proposed rules at all times.
My caveat to giving you this reminder, is also to be prudent and do not rush to make dramatic changes until we are all fully aware of what and how the proposed pension changes could affect you.
Like all good things, the success is often all in the planning!
The Financial Conduct Authority does not regulate taxation and trust advice
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