It would seem the resulting backlash that many of the rumours received has resulted in a budget that “could have been worse”. Those already with an Inheritance Tax issue will likely feel the most hard done by with changes to how pensions and businesses are treated moving forward.
We will now try to, very briefly, break down what we feel were the key announcements made in terms of financial planning.
Capital Gains Tax
It seemed inevitable that there would be some movement here but it is maybe not quite as severe as many commentators suggested. It was announced that Capital Gains Tax (CGT) will move from a lower rate of 10% and a higher rate of 20% to a lower rate of 18% and a higher rate of 24%. These changes will come into effect as of 30th October 2024 with residential CGT rates remaining at 18% and 24%. Business Asset Disposal Relief will remain at £1m but with the rates of tax rising from 10% to 14% in April 2025 and then 18% in April 2026.
Inheritance Tax
From April 2027 any pension funds that are remaining after death will form part of a person’s estate for inheritance tax (IHT). This will likely change quite a few of our client’s financial plans moving forward. Before this change, for some clients, pensions were going to be the last asset used for income in retirement or left entirely as a legacy since they weren’t liable to inheritance tax. One benefit is that we have 18 months to review plans and we will be sure to have those conversations with affected clients as and when we next meet.
Elsewhere, Inheritance Tax Nil Rate Bands remain at £325k and an additional £175k for residential property passed on to direct descendants. These have been frozen for an additional two years until 2030. The underlying rate of IHT has not been changed and this remains at 40%.
What has changed is some of the benefits for business owners and those investing in businesses. Previously, if you owned a trading business on death, that business would qualify for Business Relief meaning it was taxable at 0% for IHT no matter the value. From April 2026, as we understand it, the first £1m will still be at 0% but the value of the business above £1m will be liable to inheritance tax at an effective rate of 20% due to there now only being a 50% relief. Again, this could have significant implications for many of our business owner clients and will be something for us to discuss in due course.
AIM shares, which also previously attracted full relief, will now only receive a 50% reduction, so an effective rate of 20%.
Other Key Points
Pension tax free cash was left untouched, the pension lifetime allowance remains abolished, and the rules around how much you can contribute to pensions annually are staying the same. Lastly, dividend tax rates were not touched which at one point was being rumoured as well.
Summary
As is often the case with an announcement such as this, there is always a bit more devil in the details. Once the full publication is released there may be more to analyse and to discuss but unless we contact you, we’re happy to pick up these conversations at your next annual meeting. If however, you would like to speak to us before then, please let us know. Hopefully this provides you with an idea of our thoughts given what we have had sight of thus far.
Footnotes
None of the above should be treated as advice.
