Author: Glenn

A number of changes to Inheritance Tax (IHT) were announced as part of the Budget measures. We have covered each of the main measures below. It should be noted that these changes are not coming into effect until April 2026 at the earliest.

IHT reliefs

Changes were announced to IHT Business Relief and IHT Agricultural Property Relief. Currently, these reliefs can offer a significant tax benefit for estates with qualifying business and agricultural assets. Under these reliefs, a benefit of either 50% or 100% relief is available from IHT with no cap.

The Chancellor announced that from April 2026, qualifying estates with agricultural or business assets will only be able to claim 100% tax relief on the first £1 million of assets. Any value over £1 million will see tax relief restricted to 50%. A consultation is expected to be published next year with further details of the intended changes.

Inherited pensions

Most undrawn private pensions are currently excluded from IHT on death. It has been announced that this will change from 6 April 2027 when the value of unused pension funds and death benefits payable will be included in IHT calculations.

This effectively means that the value of the pension pot will be added to other assets to be included in the value of a person’s estate and therefore potentially chargeable to IHT. A consultation on the proposed changes has been launched.

As part of these changes, pension scheme administrators will become liable for reporting and paying any IHT due on unused pension funds and death benefits.

IHT nil-rate bands

The IHT nil-rate bands have been frozen for a number of years and had been set to remain at current levels until 5 April 2028. The Chancellor announced that the government will extend this freeze for another 2 years until 5 April 2030.

This means that:

• the nil-rate band will continue at £325,000
• residence nil-rate band will continue at £175,000
• residence nil-rate band taper will continue to start at £2 million.

It was announced as part of the Budget measures that the higher rates of Stamp Duty Land Tax (SDLT) on purchases of additional residential properties will increase to 5% (from 3%) for transactions with an effective date on or after 31 October 2024.

This applies to individual purchases of additional residential property such as buy to let properties and second homes in England and Northern Ireland. The higher rate does not usually apply to individuals who own one residential property irrespective of the intended use of the property. However, individuals might be required to pay the higher rates even if they plan to live in the property they are purchasing and do not own another residential property. This is because the rules apply not just to the buyer, but also to anyone they are married to or purchasing the property jointly with. The measure also increases the single rate of SDLT payable by companies and other non-natural persons when purchasing residential properties worth more than £500,000, from 15% to 17%.

Temporary changes were made by the previous government in September 2022 to various SDLT bands reducing the amount of SDLT payable for many buyers. No SDLT is currently payable for first-time buyers making a purchase of up to £425,000 (£300,000 prior to 23 September 2022). The relief also applies to the first £425,000 (£300,000 prior to 23 September 2022) for purchases up to £625,000 (£500,000 prior to 23 September 2022). There is no SDLT relief available for first-time buyers spending more than £625,000 (£500,000 prior to 23 September 2022) on a property. No extension to these temporary changes was announced as part of the Budget measures so these figures are now expected to revert back to the old limits on 31 March 2025 as planned.

In addition, the SDLT zero rate band was increased from £125,000 to £250,000 from 23 September 2022. This resulted in the removal of the 2% band for properties ranging from £125,000 to £250,000. These changes are also temporary and set to revert back to the old limits on 31 March 2025.

As part of the Autumn Budget measures the Chancellor announced that the duty rates on tobacco products were increased by 2% above the rate of inflation (based on RPI) effective from 6pm on 30 October 2024. It was also confirmed that the duty for hand-rolling tobacco was increased by an additional 10%, to 12% above RPI inflation at the same time to narrow the gap between hand-rolling tobacco and cigarette duty rates.

The Chancellor also announced that effective from 1 February 2025, the government will increase the Alcohol Duty rates that apply to all non-draught products in line with Retail Price Index inflation. In happier news, it was announced that the government will reduce all Alcohol Duty rates for draught products by 1.7% in cash terms (or 5.1% if compared to the baseline expectation that rates would be increased with the Retail Price Index). The reduction to duty rates on draught products will result in the average alcoholic strength pint (4.58% alcohol by volume) paying 1 pence less in duty.

It was further announced that the government will introduce a new duty  at a flat rate of 22p/ml on vaping products from October 2026. This will be accompanied by a further one-off increase in tobacco duty to maintain financial incentive to choose vaping over smoking.

In the Autumn Budget, the Chancellor had been widely expected to increase fuel duty rates. However, in a surprise announcement she extended the fuel duty cut for a further 12 months to help support households and businesses. A tax cut estimated to be worth £3 billion.

The government was facing considerable pressure from consumer and business groups to try and alleviate the pain of high fuel prices. This means that the temporary cut in the rates of fuel duty introduced at Spring Statement in March 2022, and extended multiple times is to be extended for a further 12 months until 22 March 2026.

The assumed inflation increases in fuel duty will not now take place. This will maintain fuel duty rates at current levels for another year and represents a reduction of around 7p per litre for main petrol and diesel rates in comparison to previous plans.

As had been widely predicted, the Chancellor announced increases to the rate of National Insurance contributions (NICs) that are paid by employers. The main rate of secondary Class 1 NICs will increase by 1.2% to 15% (from 13.8%) effective from 6 April 2025. The Class 1A and Class 1B employer rates will also increase in line with this change.

The Class 1 NICs secondary threshold, the level at which employers start to pay NICs, will also be reduced to £5,000 (from £9,100) per year. This change will take effect from 6 April 2025 and last until 5 April 2028. Thereafter, the secondary Class 1 NICs threshold will be increased annually in line with the Consumer Price Index (CPI).

To help small businesses with these changes it was also announced by the Chancellor, Rachel Reeves, that the Employment Allowance will increase from £5,000 to £10,500. Currently, the allowance is only available to employers that have employer NIC liabilities of under £100,000. The Chancellor confirmed that this threshold will be removed and that all eligible small businesses will benefit from the increased rate. Government figures have confirmed that this results in 865,000 employers paying no NICs next year. These changes will come into effect from April 2025.