Chancellor announces Inheritance Tax changes (Image: Getty Images)

Budget 2024: How Inheritance Tax shake-up could impact you and your family

by · Daily Record

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A shake-up to Inheritance Tax has been announced by Chancellor Rachel Reeves as part of her Budget.

The tax, which is sometimes paid on the “estate” of someone who has died including property, possessions and money, is reserved to Westminster and applies to Scots. It currently raises about £8billion a year for the Treasury, however, very few people end up paying it at the moment.

In a major change, the Chancellor announced that from 2027, inherited pensions will be subject to Inheritance Tax and considered part of someone’s “estate”. Under current rules, if you die before the age of 75, the person inheriting your pension will not have to pay tax on it.

But that will change in three years’ time with the person who inherits someone else’s pension paying Income Tax when they draw from it, meaning it will be treated as income. Reeves said it was part of a “balanced approach” to inheritance rules.

This was Rachel Reeves' first Budget as Chancellor (Image: PA Media)

Elsewhere, the Chancellor decided to freeze Inheritance Tax thresholds at current levels until 2030. Fewer than 5 per cent of estates are currently subject to Inheritance Tax, which applies to wealth transferred within seven years of someone's death.

The freeze means the transfer of the first £325,000 of an estate will remain tax-free, after which the standard tax rate is 40 per cent. That figure rises to £500,000 if someone is passing down their estate to descendants, including natural children, adopted, foster or stepchildren or grandchildren - and £1million if passing onto a spouse or civil partner.

Reeves announced there will also be reforms to Agricultural Property Relief and Business Property Relief from April 2026. There will continue to be no Inheritance Tax on the first £1million of combined business and agricultural assets. However, assets over this amount will be given 50 per cent relief, which means an effective rate of 20 per cent Inheritance Tax.

What the Budget means for you

These changes, affecting he wealthiest 2000 estates each year, are predicted to raise £2billion to support public services. The Chancellor told MPs: "Only 6 per cent of estates will pay Inheritance Tax this year.

"I understand the strongly held desire to pass down savings to children and grandchildren, so I am taking a balanced approach in my package today."

There are further ways to reduce how much Inheritance Tax is paid on someone’s estate. Tax rates on some assets can be reduced from 40 per cent to 36 per cent if at least 10 per cent of the net value after any deductions is left to charity in a will.

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