Understanding inheritance tax: How does the 2024 autumn budget affect you?

All of our content is approved by our in-house expert advisory panel.

Inheritance Tax (IHT) changes formed a major part of the new Labour government’s Autumn Budget 2024.

Among the key points arising from the budget is that IHT thresholds will remain frozen until 2030. That means you won’t pay IHT on the first £325,000 of your estate, and the current Residence Nil Rate Band (RNRB) up to £175,000 is also unchanged on a family home left to direct descendants.

However, inherited pension pots will be subjected to the tax from 6 April 2027. After that date, any value left in your personal pension pot when you die will be included in your IHT and taxed at 40%. Here, the nil rate band will be spread between the pension and wider estate, with the scheme administrator responsible for paying the tax due. Significant changes were also announced to agricultural property relief (APR) and business property relief (BPR) in Labour’s first budget since returning to power.

The nation’s understanding of these IHT changes and their effects on pensions and investments has come under the spotlight in the latest LV= Wealth and Wellbeing Research Programme edition 19 – a quarterly survey of 4,000 nationally representative UK adults up to December 2024.

According to the research, nearly a quarter (22%) of UK adults are more worried about their potential inheritance tax bill since the budget announcement and 21% have searched the internet for answers to their possible inheritance tax bill/calculation.

Of those UK adults who took part in the survey, 40% said they understood what these new IHT changes would mean for their personal finances, while 24% did not. Similarly, 40% said they understood how IHT on pensions would affect their estate, while more than a quarter of people (27%) said they didn’t understand, suggesting a significant gap in the nation’s knowledge of IHT.

One way to make the most out of your pensions and investments is to seek professional retirement and pension advice. A quarter of UK adults (25%) surveyed said they were planning to do this in light of the budget.

Whist 18% of UK adults said they would change their retirement plans following the 2024 Autumn Budget announcement, 40% said they had no desire to alter their plans.

However, less than 1 in 5 adults (17%) say they have contacted their own financial provider about their possible inheritance tax bill/calculations in reaction to the budget, and only 16% had been in touch with a financial adviser. Additionally, 15% of UK adults say they have contacted government-based financial services such as MoneyHelper and 13% have approached HMRC. This suggests the significant majority of people have not sought financial advice following the budget, even though it can help them explore other ways to plan for IHT such as investing in life insurance trusts.

More than two-thirds (67%) of UK adults say they know a bit/very little about how investment bonds could be used for inheritance tax planning, but only 10% said they know a lot/everything about the topic.

The nation’s understanding of investment bonds also differs between sexes, with around twice as many men saying they know a lot/everything about this type of investment option than women (15% vs 7%). Not only that, but general awareness of investment bonds is also higher among men, with only 17% admitting they’ve never heard of this compared to 27% of women.

If you’re concerned about the effects of inheritance tax changes announced in the 2024 Autumn Budget, seeking retirement and pension advice could provide wider savings and investment options to help you plan for a comfortable retirement.

Marc Perry, Advice and Consumer Channel Director at LV= said:

"These findings reveal a significant knowledge gap when it comes to understanding the new inheritance tax proposals, particularly around pensions. With only 40% of adults feeling confident about how these proposals will affect their personal finances, there's a clear need for better education and professional guidance. The fact that so few people have sought financial advice since the budget announcement is concerning, especially given the substantial proposals coming to pension inheritance tax in 2027. We encourage everyone to review their retirement and estate planning strategy with a qualified financial adviser to ensure they're making informed decisions about their financial future."