Autumn Budget 2024 Inheritance Tax Changes UK: Full Summary and Planning Guide
The 30 October 2024 Budget announced the most significant inheritance tax reforms in over 25 years — affecting farmers, business owners, pension holders, and anyone with a taxable estate. This guide explains every change, the implementation dates, and what you should be doing now.
Two critical deadlines
- 6 April 2026: APR/BPR £1 million combined cap takes effect — farmers and business owners affected from this date.
- 6 April 2027: Pension pots included in estates for IHT — review all pension nominations and drawdown strategies before this date.
Summary of all Budget 2024 IHT changes
| Change | Implementation date | Who is affected |
|---|---|---|
| APR/BPR combined cap at £1m (100% relief); 50% relief above that | 6 April 2026 | Farm owners, business owners, AIM investors |
| Pension funds and death benefits included in estate for IHT | 6 April 2027 | Anyone with a defined contribution pension pot |
| Nil-rate band (£325,000) frozen | Extended to 2030 | All estates — fiscal drag effect |
| Residence nil-rate band (£175,000) frozen | Extended to 2030 | Estates passing main home to direct descendants |
| Annual exemption (£3,000) — unchanged | No change | No change |
| Spouse/civil partner exemption — unchanged | No change | No change |
| Charity exemption — unchanged | No change | No change |
| Normal expenditure out of income exemption — unchanged | No change | No change |
Change 1: APR and BPR capped at £1 million (from April 2026)
Until 5 April 2026, agricultural property relief and business property relief give 100% IHT relief on qualifying assets with no upper limit. A farm worth £10 million could pass entirely free of IHT to the next generation. From 6 April 2026, this changes fundamentally.
How the new cap works
- The first £1 million of combined APR and BPR qualifying assets: 100% relief — no IHT
- Assets above £1 million: 50% relief — IHT at 20% (50% of the standard 40% rate)
- The £1 million cap is per individual, not per couple. A couple can each have a £1 million cap = £2 million combined at full relief
- The NRB (£325,000) and RNRB (up to £175,000) are applied after APR/BPR, potentially reducing or eliminating the remaining IHT liability
- Instalment payment option (10 years) applies to illiquid qualifying assets — important for farms that cannot easily be sold to pay a tax bill
Example: family farm
Farmer dies May 2026. Farm value: £3,000,000 (all qualifying for APR at 100%).
- APR relief on first £1,000,000: 100% — IHT £0
- Remaining £2,000,000 × 50% relief = £1,000,000 chargeable
- Less NRB: £325,000
- Taxable: £675,000 × 40% = IHT £270,000
Under the pre-April 2026 rules: IHT = £0.
For more detail on how the APR changes specifically work, see our guides on agricultural property relief reform 2026 and business property relief budget 2024.
Change 2: Pension pots included in IHT from April 2027
This is the change that will affect the most people. Defined contribution pension pots — workplace pensions, SIPPs, personal pensions — are currently completely outside the estate for IHT. From 6 April 2027, they will form part of the taxable estate.
What changes
- Currently: pension pot is outside the estate — no IHT on death, beneficiaries receive the full fund
- From April 2027: pension pot value included in estate — IHT charged at 40% on the amount over the available NRB (after other assets and reliefs)
- Pension scheme administrators become jointly liable for the IHT — they pay HMRC before distributing to nominated beneficiaries
- Defined benefit lump sum death benefits also captured
- Ongoing dependent's pensions (income drawdown) expected to remain outside the estate
Planning actions before April 2027
- Review and update all pension expression of wishes nominations — these still determine who receives the benefit, but the IHT will now be paid first
- Consider accelerating pension drawdown if you have sufficient other assets — taking income from the pension and gifting it, using the normal expenditure out of income exemption
- Consider whether a pension pot should be drawn down and the proceeds used to fund life assurance held in an IHT-exempt trust — the insurance pays out on death and the pension no longer forms part of the estate
- Larger pension pots may benefit from specialist financial advice on pension drawdown sequencing
See our full guide to pension IHT changes 2027.
Change 3: Nil-rate band frozen to 2030
The nil-rate band has been frozen since 2009. The Budget 2024 extended this freeze to at least 2030 — meaning 21 years at £325,000. The residence nil-rate band (introduced in 2017, phased up to £175,000 by 2020) is frozen at the same level until 2030.
The effect is an ongoing "stealth tax" — the real value of the threshold falls each year as asset values and house prices rise. An estimated 6–7% of deaths per year currently result in an IHT liability; this proportion is expected to rise meaningfully before 2030 purely due to fiscal drag.
For couples with the full transferable NRB and RNRB, the combined threshold remains £1 million. For individuals, or couples who do not qualify for the RNRB (e.g., no direct descendants, or estate over £2 million which tapers the RNRB), the threshold is much lower.
FAQs
What were the key inheritance tax changes announced in the Autumn Budget 2024?
The Chancellor's Autumn Budget on 30 October 2024 announced the most significant inheritance tax reforms since the nil-rate band was introduced. The headline changes were: (1) PENSION POTS INTO IHT (FROM APRIL 2027): unused pension funds and death benefits will be included in an individual's estate for inheritance tax from 6 April 2027. Currently, pension funds fall outside the estate and can be passed to beneficiaries IHT-free. From April 2027, pension scheme administrators will become liable to pay IHT on the pension assets before paying them out to beneficiaries. This is one of the biggest structural changes to UK retirement and estate planning. (2) AGRICULTURAL AND BUSINESS PROPERTY RELIEF CAP (FROM APRIL 2026): from 6 April 2026, a combined cap of £1 million applies to the full 100% relief available under agricultural property relief (APR) and business property relief (BPR). Assets qualifying for APR or BPR above the £1 million combined cap will attract IHT at 50% of the standard rate — effectively a 20% IHT rate on the excess. For example, a farm worth £3 million would get full relief on the first £1 million and pay IHT at 20% on the remaining £2 million. (3) NIL-RATE BAND FROZEN TO 2030: the nil-rate band (£325,000) and residence nil-rate band (£175,000) were frozen at current levels until at least 2030 — extending the previous freeze, which already has a significant fiscal drag effect as house prices and asset values rise. (4) SMALLER CHANGES: the £3,000 annual exemption, small gifts exemption (£250), normal expenditure out of income exemption, and wedding/civil partnership gift exemptions were all left unchanged — another real-terms freeze. Transfers between spouses and civil partners remain fully exempt.
How does the April 2026 agricultural and business property relief cap work?
From 6 April 2026, a combined £1 million cap applies to the portion of agricultural property relief (APR) and business property relief (BPR) that qualifies for 100% relief. Here is how it works in practice: STEP 1 — IDENTIFY QUALIFYING ASSETS: list all assets that qualify for 100% APR (farmland actively farmed, farmhouse occupied for farming purposes, farm buildings) and 100% BPR (shares in qualifying unquoted trading companies, interests in qualifying trading partnerships, certain AIM shares, assets used in a qualifying business). STEP 2 — APPLY THE £1 MILLION CAP: the first £1 million of qualifying APR/BPR assets combined is fully relieved (100% relief — no IHT). Assets above the £1 million threshold qualify for 50% relief — i.e., IHT applies at 50% of the standard 40% rate, giving an effective IHT rate of 20% on the excess. STEP 3 — THEN APPLY NRB/RNRB: after APR/BPR, the nil-rate band (£325,000) and residence nil-rate band (up to £175,000) reduce the taxable estate further. EXAMPLE: a farmer dies in May 2026 with a farm worth £2.5 million (qualifying for 100% APR) and a farmhouse worth £500,000 (qualifying for APR). Total qualifying assets: £3 million. Relief: full on first £1 million; 50% on remaining £2 million. IHT = 20% × £2 million = £400,000. Before these changes, the entire £3 million farm estate could have qualified for 100% APR (IHT = £nil). TRANSITIONAL ARRANGEMENTS: assets already on APR/BPR before April 2026 will be subject to the new rules from that date. There is no grandfathering for existing relief claims. INSTALMENT OPTION: given the potential for large IHT bills, it is likely that instalment arrangements (paying IHT over 10 years) will be extensively used for illiquid agricultural or business assets. Interest applies on instalments.
How will pension pots be taxed under inheritance tax from April 2027?
From 6 April 2027, unused pension funds on death and pension death benefits will become subject to inheritance tax as part of the deceased's estate. The current system is being fundamentally changed. CURRENT POSITION (BEFORE APRIL 2027): pension funds held in money purchase (defined contribution) schemes are not treated as part of the estate for IHT. They fall outside the estate entirely because the member does not legally own the pension pot — the pension trust does. Death benefits can be paid to any nominated beneficiary free of IHT. Defined benefit (final salary) scheme death benefits are similarly outside the estate. NEW POSITION (FROM APRIL 2027): pension funds will be treated as part of the member's estate for IHT. The pension scheme administrator will become jointly liable with the personal representatives for the IHT due on pension assets. HMRC will collect IHT from the scheme before benefits are paid to beneficiaries — meaning beneficiaries receive a reduced pension death benefit. DEFINED CONTRIBUTION PENSIONS: the pot value at death will be included in the estate. DEFINED BENEFIT PENSIONS (LUMP SUM DEATH BENEFITS): lump sum death benefits will be included. Ongoing dependant's pensions are expected to be excluded. EXPRESSION OF WISHES: the current practice of nominating a beneficiary via an expression of wishes will remain important — but the IHT position on the pension will be separate from who receives the benefit. Planning implication: many people built up pension pots specifically as IHT-efficient estate planning vehicles, keeping other assets to fund retirement income. The April 2027 changes fundamentally alter this logic — pensions are no longer automatically outside the estate for IHT. Review is essential. See our full guide to the pension IHT changes.
How does the nil-rate band freeze to 2030 affect inheritance tax planning?
The nil-rate band has been frozen at £325,000 since 2009 — nearly 20 years. The RNRB was introduced in 2017 at £100,000 and increased to £175,000 by 2020. Both were already frozen until 2028 under the previous government; the Budget 2024 extended this freeze to at least 2030. THE FISCAL DRAG EFFECT: freezing the NRB while house prices, pension values, and asset values rise means more and more estates become taxable each year — without any headline rate change. In 2009, a £325,000 nil-rate band covered the average UK house price and more. In 2026, the average UK house price is approximately £285,000 (varies significantly by region — London averages over £500,000). An estate with a modestly valued London home can easily exceed the NRB, particularly for those without the RNRB (e.g., where no children inherit the home). THE NUMBERS: a couple with fully transferable NRB and RNRB has a combined £1 million IHT threshold (£325,000 + £325,000 + £175,000 + £175,000). A couple who do not meet the RNRB conditions has a combined threshold of only £650,000. WHAT IT MEANS FOR PLANNING: the frozen NRB increases the importance of lifetime planning — using the annual exemption (£3,000 per year), normal expenditure out of income, seven-year PETs, deed of variation after death, and will trusts. For estates close to the NRB threshold, the difference between a carefully planned estate and one without planning can be £40,000–£100,000 in IHT — the tax payable on the extra amount dragged into the taxable band by the freeze.
What should I do to prepare for the Budget 2024 inheritance tax changes?
The Budget 2024 changes require action across several planning areas. PENSION REVIEW (URGENT — BEFORE APRIL 2027): (1) review expression of wishes nominations for all pension schemes — these still determine who receives the death benefit, even though IHT will now apply; (2) consider whether it makes sense to accelerate pension drawdown to fund other IHT-efficient giving (such as gifts to beneficiaries that become PETs or use the annual exemption); (3) consider whether pension assets should be drawn down and reinvested in life insurance held in an IHT-exempt trust; (4) for larger estates with pensions, obtain professional advice on whether the 'pension cascade' approach (delaying drawdown to preserve the pension for the next generation) still makes sense. FARM AND BUSINESS OWNERS (URGENT — BEFORE APRIL 2026): (1) review the value of APR/BPR qualifying assets and quantify the new IHT exposure above £1 million; (2) consider whether lifetime gifts of qualifying assets to the next generation are appropriate — using the seven-year rule for BPR assets, noting that gifted BPR assets may lose their BPR status if the donee does not use them in a qualifying business; (3) consider whether shareholder protection or key person insurance can fund the IHT liability; (4) review whether company structures and ownership are optimised for the new regime. GENERAL ESTATE PLANNING: (1) update your will to reflect the new IHT landscape — trust structures, spousal bypass arrangements, and charitable giving all need reviewing; (2) use the annual exemption (£3,000 per year — unchanged) and normal expenditure out of income exemption systematically; (3) consider charitable legacies — a 10% charitable gift in the will reduces IHT from 40% to 36% on the remaining estate; (4) ensure your will is up to date and reflects your current family structure and asset base.
Related guides
Update your will for the new IHT landscape
The Budget 2024 changes make estate planning more important than ever. A current, well-drafted will with appropriate trust provisions can significantly reduce the IHT burden on your estate.