What does the budget mean for wealth, retirement and estate planning?

Inheritance Tax respite – but fiscal drag brings more estates into the tax net

The last two Rachel Reeves’ budgets brought about dramatic changes for business owners, farmers and clients with pension funds. There was, however, some respite in John Healey’s first Budget as Chancellor where he confirmed that the Inheritance Tax (IHT) thresholds were again left unchanged and would be until at least 2031.

By then we will have had 22 years of a society with an unchanged Nil Rate Band, which – taking the effect of inflation into account – has brought far more estates into the IHT net than before. 

According to the Office for Budget Responsibility, it is estimated that by 2031 the number of estates affected by this tax will have almost doubled from one in 20 estates to one in 11 estates, and especially with Rachel Reeves’ decision to bring pensions into the IHT net. As a result, tax receipts are expected to increase from currently £8.3 billion to £14.5 billion by 2030/31.

New restrictions on holdover relief

As far as our clients are concerned, there were two smaller technical changes, that are pertinent. 

The first was around what assets get the benefit of holdover relief. If you have a business that has within its value intangible assets – such as goodwill, branding and software – then you will need to take advice as to the extent of any holdover relief that will be available on the gifting of those business assets. It is intended that holdover relief will be more restricted and so care will need to be taken that you don’t inadvertently create an unwelcome and unexpected Capital Gains Tax bill. This is due to come into force in April 2027, so clients will have a few months in which to review their plans.

Tightening of artificial debts rules for Trusts

The other area HMRC have focused on is the issue of artificial debts. This is something that HMRC has been very careful about with individuals, but Trustees have had a more generous regime in that regard.

This is going to change and will affect all events on or after 28 October 2026 (i.e. the date of the budget). Legislation is being brought forward in the Finance bill and, as with all these things, the devil will be in the detail.

Care will need to be taken where debts originated from assets held by either the settlor or beneficiaries. This is intended to bring the rules in line with those of individuals. Looking at the budget, it isn’t expected to be a revenue raiser as such, but it is crucial you take advice if you are a Trustee and are looking to create debt within your Trust so that you don’t fall foul of the new rules. 

If you require advice on any of the issues mentioned in this article, please contact Elliot Lewis on 020 8461 6199 or via email elliot.lewis@thackraywilliams.com, or speak to any member of the Private Client team.