Rachel Reeves IHT Changes: What the 2024 Autumn Budget Means for Your Estate

What Changed in the 2024 Autumn Budget

Chancellor Rachel Reeves delivered the 2024 Autumn Budget on 30 October 2024, and it contained the most significant inheritance tax reforms in years. While the headline IHT rate stays at 40%, the changes to thresholds, pensions, and agricultural relief mean far more families will find themselves caught by inheritance tax in the coming years.

The core changes fall into three areas: an extended freeze on tax-free thresholds, the inclusion of pensions in taxable estates, and reforms to reliefs that previously shielded agricultural and business property.

Nil Rate Band Frozen Until 2030

The nil rate band (NRB) has been stuck at £325,000 since 2009. Before this Budget, the freeze was due to end in April 2028. Reeves extended that freeze until at least April 2030, meaning the NRB will have been unchanged for over two decades.

The residence nil rate band (RNRB) also remains frozen at £175,000. This additional allowance applies when you leave your main home to direct descendants such as children or grandchildren.

For a married couple or civil partners, the combined effect of both bands gives a maximum tax-free threshold of £1 million. But that figure has not changed since 2020, and with property prices continuing to climb, the real value of these allowances is eroding every year.

To put this in perspective, the average UK house price now sits above £290,000. A homeowner with a modest pension and some savings can easily find their total estate value exceeding the threshold, especially once the pension changes come into force.

Pensions Coming into IHT from April 2027

This is the single biggest change from the Budget and the one that will affect the most people. Currently, unused pension funds can be passed on to beneficiaries free of inheritance tax. That changes on 6 April 2027.

From that date, unused pension pots and death benefits will form part of your taxable estate for IHT purposes. This is a fundamental shift in how pensions interact with estate planning. Many people have been deliberately leaving their pensions untouched and drawing down other savings first, precisely because pensions sit outside the IHT net.

The government estimates this change will bring in an additional £1.46 billion per year by 2029-30.

What this means in practice:

• If you die with a £200,000 pension pot and your estate is already above the nil rate band, your beneficiaries could face an additional £80,000 in IHT on that pension alone.
• Pension beneficiaries who are not your spouse or civil partner may also pay income tax on withdrawals, creating a potential double taxation scenario.
• Defined benefit pensions that offer lump sum death benefits are also affected.

The government has said it will consult on the precise mechanics of how pension scheme administrators will report and pay the tax, but the principle is confirmed.

Agricultural and Business Property Relief Changes

Agricultural Property Relief (APR) and Business Property Relief (BPR) have historically allowed qualifying assets to pass free of IHT. These reliefs have been critical for farming families and small business owners.

From April 2026, the changes are:

• The first £1 million of combined APR and BPR qualifying assets will continue to receive 100% relief.
• Amounts above £1 million will only receive 50% relief, meaning IHT will be charged at an effective rate of 20% on the excess.
• AIM shares, which currently qualify for 100% BPR after two years, will only receive 50% relief from April 2026 regardless of value.

For a farming family with a £3 million farm, this means the first £1 million passes free of IHT, but the remaining £2 million faces an effective 20% charge. That is a potential £400,000 tax bill on an asset that was previously fully exempt.

The government has introduced a payment instalment option allowing agricultural and business property IHT to be paid over 10 years, interest-free. This is designed to prevent families from having to sell land or close businesses to pay the tax bill immediately.

What This Means for Typical UK Families

The combined effect of these changes is that the IHT net is widening considerably. Families who previously thought they were below the threshold may now find themselves liable, particularly once pensions are included.

Consider a common scenario: a married couple with a family home worth £450,000, savings of £100,000, and combined pensions of £300,000. Under the current rules, the pensions sit outside the estate, leaving a combined estate of £550,000 — well within the married couple threshold of £1 million.

From April 2027, those pensions count. The estate is now £850,000. Still within the £1 million threshold, but with far less headroom. Any further growth in property values or pension savings could push the family into IHT territory.

For unmarried individuals or those without children (who cannot use the RNRB), the numbers are even tighter. A single person with a £400,000 home and a £150,000 pension pot has a £550,000 estate against a £325,000 threshold, producing a potential IHT bill of £90,000.

Steps You Can Take Now

While these changes narrow the options available, there are still legitimate steps you can take to reduce your potential IHT liability:

• Review your pension drawdown strategy. With pensions entering the IHT net, the old advice of spending other assets first may no longer be the best approach. A financial adviser can help you model different withdrawal sequences.
• Make use of annual gift exemptions. You can give away £3,000 per year free of IHT, plus unlimited small gifts of up to £250 per person. Gifts from surplus income are also exempt with no annual limit.
• Consider your life insurance arrangements. A life insurance policy written in trust can provide funds to cover an IHT bill without adding to your taxable estate.
• Review business and agricultural property. If you hold qualifying assets above £1 million, consider whether restructuring ownership or using trusts could help manage the reduced relief.
• Write or update your will. Many of these planning strategies depend on having a valid, up-to-date will that reflects your intentions.

Check Your Exposure with Our Free IHT Calculator

If you are unsure whether these changes affect your family, our free inheritance tax calculator can give you an estimate of your potential IHT liability in under two minutes. It accounts for the latest threshold freezes and the upcoming pension changes, so you can see exactly where you stand.

Use the IHT Calculator

The calculator is free, requires no sign-up, and gives you an instant result. From there, you can decide whether you need to take further action or speak to a professional adviser.