The 2024 Budget has brought fresh urgency to inheritance tax planning.
With new rules extending tax liability to pensions and tightening reliefs for family businesses and farms, many households now face tax exposure for the first time.
Fortunately, the law still offers several strategies to reduce or eliminate this burden if used correctly.
Approximate Reading Time: 4 minutes
Topics Discussed:
- Inheritance tax planning techniques under the new 2024 Budget rules.
- Legal strategies for gifting, trusts, and exemptions to protect your estate.
What’s Changed Legally?
The 2024 Budget, introduced by Chancellor Rachel Reeves, confirmed that unspent pensions will be subject to inheritance tax from April 2027.
This comes alongside tighter controls on agricultural and business reliefs, pushing more estates over the £1 million threshold.
The standard nil-rate band of £325,000 remains frozen until at least 2030, meaning more families are caught by fiscal drag.
The changes have significant implications, especially for estates that previously fell under the threshold.
For many, this now means facing a 40% IHT charge, a substantial cost without proper planning.
Key Legal Strategies to Mitigate IHT Exposure
1. Review Pension and Estate Totals Now
Although the new pension rules don’t apply until 2027, now is the time to assess whether your combined assets and pension pots may breach the threshold. For couples, combining allowances can provide up to £1 million of tax-free protection, but the composition of your estate matters.
Seek advice on how pensions interact with IHT and whether early drawdown, gifting, or annuities may offer a tax-efficient solution.2. Use Annual Exemptions and Lifetime Gift Allowances
2. Use Annual Exemptions and Lifetime Gift Allowances
Under the annual exemption, individuals can gift £3,000 per tax year without impacting their estate’s IHT status. If unused, this can be carried over one year, effectively doubling the allowance.
Additional exemptions include:
- £250 small gift allowance per recipient.
- Wedding gifts: £5,000 for children, £2,500 for grandchildren, and £1,000 for others.
These legally recognised gifts offer a simple and cost-free way to reduce the taxable estate.
3. Leverage the Seven-Year Rule for Larger Gifts
Substantial gifts made during your lifetime will escape inheritance tax if you survive seven years after the transfer.
Taper relief applies on a sliding scale for gifts made between three and seven years before death.
Clear documentation is essential. Maintain dated records of the gift and any associated conditions to avoid complications with HMRC.
4. Make Regular Gifts from Income
The normal expenditure out of income rule allows you to make inheritance tax-free gifts from surplus income. This exemption is unlimited, provided:
- It is made from income (not capital),
- It is habitual or regular,
- It doesn’t affect your standard of living.
This is a highly efficient and underused provision, especially for those wanting to support children or relatives on a monthly basis.
5. Use the Residence Nil-Rate Band (RNRB)
When passing your primary residence to direct descendants (children, grandchildren, stepchildren), you benefit from an additional £175,000 allowance per person, raising the individual IHT threshold to £500,000 (or £1 million per couple).
Eligibility caveats:
- The estate must be worth less than £2 million to claim the full benefit.
- The property must be inherited by a direct descendant.
6. Charitable Giving to Reduce Tax Rates
If 10% or more of your estate is left to charity, the IHT rate on the remaining estate drops from 40% to 36%.
Charitable gifts are also fully exempt from IHT, making this an effective way to reduce tax and support meaningful causes.
7. Establish Trusts for Asset Protection and Tax Efficiency
Trusts remain a core legal tool for inheritance tax planning, particularly where generational wealth transfer is involved.
Trusts can:
- Remove assets from your estate (subject to the 7-year rule),
- Reduce tax on lifetime transfers,
- Provide control and protection for vulnerable or young beneficiaries.
Types of Trusts:
- Bare Trusts – straightforward, but fixed.
- Discretionary Trusts – flexible and protective, with periodic charges on assets above £325,000.
Trusts do incur setup and administrative costs, but they offer long-term tax efficiency and control when professionally managed.
Summary
The 2024 Budget has intensified the need for proactive inheritance tax planning. With the inclusion of pensions and the freeze on thresholds, more estates will fall into taxable territory.
Legal strategies (such as utilising exemptions, leveraging trusts, and planning gifts) can significantly reduce the burden and protect your family’s legacy.
At Help Me Legal, our estate planning solicitors are on hand to help you navigate these changes with confidence and clarity.
Contact Help Me Legal today at 01772 282768, fill in our contact form here, or reach out via our 24 hour WhatsApp at +447816848188.