Inheritance tax rules were broadly left unchanged in the Autumn Budget, but families still face higher bills.
Like income tax thresholds, the inheritance tax nil-rate bands will now stay fixed until 2031, meaning higher property prices could push people above the £325,000 threshold, after which 40 per cent IHT is charged.
Those who leave their property to direct descendants – children or grandchildren – have an extra £175,000 tax-free allowance.
The allowances can also be passed on to a surviving spouse, meaning a couple could leave behind a total estate of £1 million without their beneficiaries paying IHT
From 2027, people’s pension pots will be brought into their estate for IHT purposes, which will push even more families into the IHT net.
If you die before age 75, the beneficiaries of your pension can take the pot free of income tax. If you die after the age, beneficiaries pay income tax on withdrawals from inherited pensions.
Frozen bands: IHT thresholds will stay at the same level until 2031
The new rules risk double taxation for those who die after the age of 75, as their pots are hit with IHT and income tax.
The Government did not provide any further information on this double taxation of beneficiaries.
The Office for Budget Responsibility estimates the proportion of estates paying IHT will double to 10 per cent by 2030.
The £325,000 tax-free allowance, which has remained in place since 2009, will remain frozen until at least 2031.
If it had increased in line with inflation, it would sit at £523,547, while the residence nil rate band would have risen from £175,000 to £230,400.
Michelle Holgate, financial planning director at RBC Brewin Dolphin said: ‘Our recent survey found that nearly three-quarters of wealthy individuals have never made a financial gift.
‘Our advice to those looking to pass on as much of their wealth as possible is to start the process of gifting as soon as possible.
‘Too many people wait until death before passing on their assets when it can be significantly more tax efficient to gift money while you are still alive.
‘Plus, you get the added bonus of seeing your loved ones benefit from your generosity.’
Everyone has a £3,000 annual gifting allowance, plus unlimited small gifts of £250, free from IHT, and spouses and civil partners can give each other any sum tax-free.
There are other ways to protect yourself from higher IHT bills for your beneficiaries. You can read our guide to gifting and IHT here.
There was some relief for farmers and business owners after changes to agricultural property relief and business relief were announced last year.
The rule changes meant that only the first £1million of agricultural or business assets would qualify for 100 per cent relief, with the remainder only getting 50 per cent relief.
The original legislation did not allow the allowances to be transferred between spouses.
Now, the Government will allow any unused £1million allowance for the 100 per cent rate of relief to be transferable between spouses and civil partners, including if the first death was before 6 April 2026.
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