The Autumn Budget’s Impact on Inheritance Disputes

Key Changes Affecting Inheritance and Probate

For Probate and Tax Practitioners, the key changes implemented in this year’s Budget can be summarised as follows:

• An increase in the lower rate of Capital Gains Tax from 10% to 18% and an increase in the higher rate from 20% to 24%
• A freeze on Inheritance Tax Nil Rate Band and Residence Nil Rate Band until 2030
• Inherited pensions will be subject to Inheritance Tax from 2027
• Combined Agricultural Property Relief and Business Property Relief set at £1m from April 2026, with anything over £1m to be taxable to Inheritance Tax at 20%

Immediate Impacts on Probate and Capital Gains Tax

The most immediate change is the increase in CGT rates; however, the free uplift on death remains despite talk of it being abolished. In the short term, there is unlikely to be any significant change in the contentious probate landscape.

Long-Term Effects on Lower Value Estates

Even in the longer term, once the remaining changes take effect, lower value estates are unlikely to be significantly affected. There will be no changes to the Nil Rate Bands until 2030, tax rates will stay the same, and none of the reliefs traditionally benefiting lower value estates (such as spousal exemption and the annual gifting allowance) have been affected. Therefore, the average estate, which might include a property, some cash in bank accounts, and a modest pension, is unlikely to be significantly impacted.

Higher Value Estates: Anticipated Impacts

Higher value estates will be most affected by these changes in the longer term. Previously, assets such as farmland, shares (meeting specific criteria), and pensions (if written in trust) were not taxable. However, this is due to change from 2026/2027 onwards. Additionally, high-net-worth individuals who own a second home will face increased CGT and SDLT rates, with SDLT rising to 5%. As a result, higher inheritance tax liabilities are likely in these cases.

It’s worth noting that many lifetime gifts of agricultural and business assets may have occurred before the budget announcement. Individuals might also opt to take their tax-free lump sum from their pension and invest it elsewhere or consider alternative tax planning strategies.

Inheritance Disputes: What This Means for Beneficiaries

For inheritance disputes involving high-value estates in the long term, higher tax liabilities may reduce available assets for beneficiaries, which could lead to less motivation to contest the estate. Given the risk of legal costs depleting an estate, parties might be more inclined to settle outside of court through alternative methods, such as mediation.

Will Inheritance Disputes Remain Prevalent?

Despite the above, there remains a financial incentive to contest higher value estates due to their size, and the recent changes are unlikely to completely decimate the estate. Additionally, as people rely more on inherited wealth to afford property, prospective litigants remain attracted to these claims. Furthermore, practitioners are continuing to see wills made under suspicious circumstances following the COVID pandemic, meaning that the courts will likely still encounter many inheritance disputes.

Potential Increase in Claims Over Lifetime Gifts

One point of curiosity is whether we might see a spike in claims aiming to set aside lifetime gifts, given the rush to transfer farm and business assets before the announcement. If a gift’s maker sought tax advice and evidence supports the transaction’s purpose, claims may be less likely to succeed. However, where no advice was sought, or the arrangement seems commercially unjustifiable, these gifts could invite increased scrutiny and potential claims.