Kirsty Preston is a Partner in our Private Client team in Dundee

Last month (October 2024), Private Client lawyer Kirsty Preston stepped up to Partner in our Dundee team.

Kirsty provides advice for people on the full range of Private Client matters including setting up Wills, Powers of Attorney and trusts and on planning how to manage personal estates.

Kirsty has over 10 years of legal practice behind her working with clients across Tayside. A graduate of the University of Dundee, she is also a member of The Society of Trust and Estate Practitioners (STEP).

If you would like to discuss your personal circumstances, you can contact Kirsty on: kirstypreston@lindsays.co.uk; or call her on 01382 317180.

Kirsty explains everything you need to know about the inheritance tax changes

Chancellor Rachel Reeves’ recent inheritance tax changes in the Autumn Budget have garnered a lot of headlines. Kirsty provides expert guidance on the Budget's key takeaways and what you need to do next.

The changes to 100% relief on qualifying agricultural and business assets over £1 million could have potentially major consequences for some.

But what will be the biggest change for the average person?

The new rules regarding pension pots is one of the most significant inheritance tax takeaways from the Budget.

Up until now, pension funds have largely not been subject to inheritance tax. But from April 2027 the majority of unused pension funds will be included as part of an individual’s estate for inheritance tax purposes.

Effect of inheritance tax changes on pension pots

So what does that mean for your estate?

Imagine an individual has personal assets totalling £500,000 and a pension fund of £500,000. Under the existing rules, it would only be the personal assets of £500,000 in the majority of cases which would be subject to inheritance tax on death.  The new rules as of 2027 will mean that the combined £1 million will be subject to inheritance tax once any nil-rate bands and other available reliefs and exemptions are deducted.  This is a big change that will impact many - I would recommend that individuals review their circumstances and take professional advice to ascertain what planning options may be available to them.

A potentially complicating factor in this equation is inflation. With property prices traditionally rising year on year, while the nil rate band has been frozen at £325,000 until at least 2030, more and more estates will be liable for inheritance tax. 

For example, a house with a current market value of £250,000 might be worth £300,000 in 2030 depending on the market and other factors.  As the Nil Rate Band is frozen at the £325,000 mark and hasn’t moved in line with inflation for many years now, this could easily bring more estates into an inheritance tax paying bracket as properties and other assets increase in value, depending on other exemptions and reliefs available at the time of the person’s death.

What can I do to reduce my liability for inheritance tax?

There are a number of mitigation strategies you can employ to reduce the inheritance tax on your estate. These include:-

Annual gifting exemption - An individual is entitled to make tax-free gifts up to £3,000 each tax year. If no gifts are made in one tax year, the £3,000 can be carried forward to the next tax year. The carry forward applies to one year only.

Small gift exemption – Individuals can make small gifts of up to £250 in each tax year to any number of different recipients. This exemption cannot be combined with any other exemption.

Gifts in consideration of marriage or civil partnership – Various sums are completely exempt from Inheritance Tax when the gift is made in consideration of a person’s marriage or civil partnership. Each parent can gift £5,000, each grandparent £2,500 and all other individuals £1,000.

Gifts to charity – There are various exemptions for gifts to charity, major political parties or for national purposes.

Normal expenditure out of income – Where an individual makes regular gifts out of surplus income, such gifts are fully exempt from inheritance tax. It must be shown that the gifts are made out of income, that there is a pattern of giving and that the gift does not reduce the donor’s standard of living.

Potentially Exempt Transfers: the seven-year gifting rule – A Potentially Exempt Transfer (PET) is an outright gift, made during lifetime, in excess of the annual exemption (of £3,000). An individual must survive for 7 years from the date of the gift in order to ensure that the value of the gift is not included in their estate for Inheritance Tax purposes.

Get the right advice?

The first step to managing your estate’s liability to the inheritance tax changes is to seek advice from an expert.

Our Private Client team are trusted advisers estate planning and inheritance tax guidance, offering clients a wealth of expertise to protect their assets and ensure smooth transitions for future generations. We provides tailored advice that navigates the complexities of inheritance tax law, helping clients maximise the value passed on to loved ones. Our lawyers work closely, where necessary, with our clients’ other professional advisers (accountants and financial advisers) to achieve this.

We create estate plans that are both efficient and flexible through a thorough understanding of individual family dynamics and financial goals, accommodating changes in personal circumstances or legislation. Our team will advise on wills, trusts, and lifetime gifts, carefully structuring each plan to reflect the client's wishes while staying tax efficient. We also cover powers of attorney, guardianships and advice on handling care home costs.

I am available to advise people across the full range of Private Client matters to organise your personal affairs.

You can reach me by emailing: kirstypreston@lindsays.co.uk

Or call me: 01382 317180

For more information, visit our page detailing our services for you and your family: For You and Your Family