Autumn Statement 2024 – inheritance tax proposals frequently asked questions

Autumn Statement 2024 – Inheritance tax proposals frequently asked questions

In the Autumn 2024 Budget statement, the government made several announcements about inheritance tax.

Here we look at some of the questions we've been asked following the announcement. The answers to the questions are based on our current understanding of the proposals. 

Potentially, there are a few exceptions. See annex B of HMRC's technical consultation.

It will also depend on the value of the individual’s estate whether inheritance tax is payable, and the spouse’s exemptions applies.

Currently the government is consulting on how to include most unused pension funds and death benefits within the value of a person’s estate for inheritance tax purposes, from 6 April 2027. The consultation does state that inheritance tax will apply to successors and nominees drawdown (so drawdown paid from a beneficiary drawdown on the death of the beneficiary).

See annex B of HMRC's technical consultation.

The taxation situation hasn’t changed so benefits are still tax-free if the deceased dies under age 75 – it’s tax-free assuming allocated to drawdown/ lump sum paid out - within 2 years starting on the date on which the scheme administrator first knew of the individual's death or, if earlier, the day when they could first reasonably have been expected to know of it. Benefits are taxable if the deceased died on or after age 75 at the recipient’s marginal rate.

The consultation published by the Government confirms that annuity protection lump sum death benefits will be included in value of estate for inheritance tax. It, however, doesn’t mention term certain (guarantee) so we can’t confirm the situation with this, yet.

Remember that under current legislation where the guaranteed payments are paid at the annuitant’s direction (there is no discretion) the market value of the remaining payments is included in the annuitant’s estate for inheritance tax purposes.

It’s too early to answer this question yet. We’re not sure how the nominations will work going forward if they are getting rid of trustees’ discretion.

Lump sum payments made into a bypass trust on death will be in scope and included in the deceased’s inheritance tax calculation.

Although the payment of the death benefit into the trust will not escape inheritance tax, the trust may still offer advantages. The trust will keep funds out of the spouse’s estate but being discretionary the trustees can advance funds to the spouse or even make loans to them.

Whilst the tax-free lump sum can be gifted it is not income but a gift of capital. Therefore, the gift would not be covered by the normal expenditure out of income exemption.

Currently, as these are personally owned 50% business relief would be available.

Within the Autumn Statement 2024 it was stated that these assets will continue to receive 50% relief and won’t use up the £1m allowance.

From 30 October 2024 the government announced a package of reforms to the taxation of Employee Ownership Trusts and Employee Benefit Trusts.

These reforms are intended to prevent opportunities for abuse, ensuring that the regimes remain focused on encouraging employee ownership and rewarding employees.

The reforms centred around banning overseas trustees, ensuring trustee independency, requiring market valuations, and ensuring the long-term objective to employee ownership.

There were anti-forestalling measures announced in the Autumn Statement 2024. These measures state that the £1 million allowance will apply to failed lifetime transfers made on or after 30 October 2024 if the donor dies on or after 6 April 2026.

For example, if the individual gifts business assets now they would appear to be able to do this without any immediate inheritance tax charge. However, if death occurs on or after 6 April 2026 but before 17 December 2031 then the £1 million limit will apply for the purposes of recalculating the inheritance tax.

The government will publish a technical consultation in early 2025 which will focus on how the allowance will apply to lifetime transfers into trusts and charges on the trust property.

Whilst changes to business relief were announced in the Autumn Budget 2024 until more details are published, it is only possible to cover current inheritance tax liability.

However, it may be possible to look to try and justify cover based on other reasons, to factor in a small amount of future growth in their inheritance tax liability.

Disclaimer

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.