Inheritance Tax: Navigating The New IHT Rules

Inheritance Tax (IHT) can be a complex and often confusing subject, and the changes announced in the autumn 2024 Budget have added new considerations for many families.
From pensions now being included in taxable estates to thresholds remaining static, it’s important to understand how these updates could affect your plans.
In this article, we simplify the key changes, explain the current rules, and explore what these developments mean for those managing or planning an estate.
2024 Budget Pension Changes
Currently, the vast majority of pension funds are payable to beneficiaries at the discretion of pension trustees.
As such, your pension(s) don’t form part of your estate on death.
It is (currently) the most common way of passing on wealth to your heirs, tax free.
From 6 April 2027, your pension(s), for IHT purposes, will be added to your estate to calculate how much tax is due.
For those with significant pension wealth, it could mean your beneficiaries receive 40% less than under the current legislation.
For others, it may mean their estate becomes subject to IHT where it previously would not have been.
Inheritance Tax Thresholds: What Is The IHT Threshold?
The current nil-rate IHT band of £325,000 has been in place since 6 April 2009.
Most estates have increased significantly in value over the past 15 years, mainly due to the growth in property wealth, meaning that more estates are becoming liable to IHT.
The Budget confirmed the nil-rate band of £325,000 will remain in place until 5 April 2030.
There is no change to the transferable nil-rate band of £325,000, which can be claimed in the estate of a surviving spouse or civil partner.
In addition, there is no change to the residence nil-rate band allowance of (up to) £175,000, which can be claimed when your home is left to children or remoter lineal descendants.
This includes adopted children, step-children, foster children and spouses of lineal descendants.
You do not have to own a home at the time of your death to claim residence nil-rate band.
There are ‘downsizing’ provisions, meaning that if you sold or downsized your home any time on or after 8 July 2015, the relief is still available.
The residence nil-rate band is also transferable to the surviving spouse/civil partner’s estate, where this is unused.
The combination of all of the aforementioned nil-rate bands (where applicable) means your estate will only be subject to IHT if it exceeds £1,000,000.
Avoiding Inheritance Tax – How To Pay Less Inheritance Tax
So, how can I reduce my Inheritance Tax bill?
There are many ways to reduce or eliminate a potential IHT bill.
Charity
One of the most common ways to do this is by gifting to charity.
You can reduce your IHT bill by giving 10% of your estate to charity.
By doing so, the rate of IHT drops from 40% to 36%.
Gifts out of income
If you have surplus income (from earnings, pensions, investments, etc), you can gift this to reduce your estate, in addition to an annual gift exemption of £3,000 and a ‘small gift’ exemption of £250.
HMRC specifies that the taxpayer must be able to show that the gifts formed part of your normal expenditure and left you with enough income to maintain your normal standard of living.
How can Bennett Griffin Help With The New IHT Rules?
Inheritance Tax is a complex area, and the recent changes mean careful planning is more important than ever.
At Bennett Griffin, we can help ensure your estate doesn’t pay more IHT than necessary by guiding you through the rules and claiming all available reliefs and exemptions—steps HMRC won’t advise on if overlooked.
Whether you’re planning your estate or managing one as an executor, our Wills, Trusts, and Probate team provides expert advice tailored to your needs.
To learn more, visit our Wills, Trusts, and Probate Services page or contact us today for practical, reliable support.