How the Inheritance Tax Allowance Freeze Could Impact Your Estate Plan

The Autumn Budget has extended the inheritance tax (IHT) allowance freeze until 2030. While the inheritance tax thresholds have remained unchanged, this decision may have a significant impact on more estates than before. With rising property values and inflation, many families are finding that even relatively modest estates may now fall within the taxable threshold.

If you’re thinking about estate planning or wondering how this might impact your family, now is the time to review your options and ensure your plan aligns with your current needs.

What Is the Inheritance Tax Allowance and the Current Freeze?

Inheritance tax is applied to the value of an estate where the total assets exceed the tax-free threshold, which remains at £325,000 (or £500,000 when including a family residence left to direct descendants). This freeze, now extended until 2030, means that as property and asset values rise, more estates will exceed this threshold and could be subject to inheritance tax.

For couples, the combined IHT allowance can reach up to £1 million when passing on property to children or grandchildren. However, with inflation and rising house prices, even “average” estates may now surpass these thresholds.

Why Does the Inheritance Tax Allowance Freeze Matter?

While the freeze might appear to keep things the same, the impact of rising asset values and inflation means more estates may become subject to IHT over time. Here are some potential effects to consider:

1. Increasing Tax Burden for Families
   With house prices on the rise, especially in certain regions, even estates once considered modest may be pushed into taxable territory. This could lead to a substantial tax bill for beneficiaries, impacting the legacy you planned for your loved ones.

2. Higher IHT Receipts for the Government
   With the threshold remaining static, record-breaking IHT receipts are expected as more estates fall within the taxable range. This has significant implications for families who rely on inheritance for financial security, education funds, or retirement plans.

3. Potential Financial Strain on Beneficiaries
   As the number of taxable estates grows, beneficiaries could face unexpected financial pressure. The funds they rely on to maintain financial stability or support future goals may now be subject to higher tax deductions.

New Changes to AIM-Traded Shares and Future IHT Rules

In addition to the allowance freeze, the recent Budget introduced a new 20% IHT rate on AIM-traded shares, which affects estates that include these investments. Additionally, from April 2027, certain pensions will now be included in IHT calculations, which may lead to further changes in how people approach retirement and estate planning.

These updates mean that it’s wise to revisit your estate plan if it involves AIM-traded shares or pensions, to ensure your assets are structured in the most tax-efficient way.

What Should You Do Next? Tips for Reviewing Your Estate Plan

With these changes, it’s more important than ever to have a proactive approach to estate planning. Here are a few steps you might consider:

1. Review Your Estate Value
   Start by assessing the current value of your estate, including property, savings, investments, and other assets. Understanding where you stand can help you better plan for potential IHT liabilities.

2. Consider Gifts and Trusts
   Making gifts during your lifetime or setting up trusts can be effective strategies for reducing the taxable portion of your estate. However, these should be tailored to your unique situation, and consulting with a solicitor and financial adviser can help guide you through these options.

3. Keep Your Will and Estate Plan Up to Date
   Regularly reviewing and updating your Will is essential, especially with ongoing tax changes. A current and comprehensive estate plan will help protect your family from unexpected tax burdens.

4. Seek Expert Advice
   Estate planning is complex, and with tax rules changing frequently, professional advice can make a significant difference. I’m here to help you understand the impacts of these updates and explore the options that best protect your estate and your family’s future.

Conclusion: Planning Ahead for a Secure Legacy

The IHT allowance freeze until 2030 underscores the importance of careful estate planning, especially for families with growing assets. Whether you’re already within the taxable range or simply want to be prepared, a well-planned estate can provide peace of mind and protect your loved ones.

If you’re considering a review of your estate plan or have questions about the inheritance tax freeze, I’m here to help. Together, we can ensure your assets are structured to safeguard your family’s future.

💬 Contact me for a no-obligation chat to discuss your estate planning needs.
📧 Email: hannah@hannahhowesolicitor.co.uk
📞 Phone: (0115) 8244960