Budget 2024: Inheritance Tax shake-up that could impact your family explained

Inheritance Tax is paid on the 'estate' of someone that has died - this includes property, possessions and money - but the Chancellor has announced huge changes to how it works today

Rachel Reeves has confirmed major changes to Inheritance Tax as part of her Autumn Budget.

Inheritance Tax is sometimes paid on the "estate" of someone that has died - this includes property, possessions and money. But under the current rules, very few people end up paying it - in fact, less than 5% of estates are currently subject to Inheritance Tax. The tax still raises about £8billion a year.

Inheritance Tax is only due for wealth transferred within seven years of death. If there is Inheritance Tax to pay, the standard rate you pay is 40% above anything above threshold, which is normally £325,000 - although this is often higher depending on who you leave your estate to. For example, there is no Inheritance Tax to pay when an estate is left to your spouse or civil partner.

In her Budget today, Rachel Reeves confirmed inherited pensions will be subject to Inheritance Tax and included in someone's "estate" from 2027. She also revealed the current Inheritance Tax thresholds will remain frozen until 20230.

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If you give away your home to your children - this includes adopted, foster or stepchildren - or grandchildren, then the Inheritance Tax threshold can increase to £500,000. This includes the basic £325,000 allowance, plus an additional £175,000. If you are married or in a civil partnership, any Inheritance Tax allowance that isn’t used can be passed on when someone dies.

This means a couple can potentially pass on as much as £1million without their estate being subject to Inheritance Tax. There are also ways to reduce how much Inheritance Tax is paid on your estate. Your rate of Inheritance Tax on some assets is reduced from 40% to 36% if you leave at least 10% of the net value after any deductions to a charity in your will.