2024 Autumn Budget – Key Considerations

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Pensions

The government has announced plans to include most unused pension funds and death benefits within the value of a person’s estate for Inheritance Tax purposes from 6 April 2027. Whilst this may be a concern, we do not yet have a full understanding of the changes and how they will impact you.

A technical consultation will run for 12 weeks from 30 October 2024 to determine the processes required to implement the changes.

The consultation:

• Seeks stakeholder views on the process by which Pension Scheme Administrators will report and pay any IHT due to HMRC.
• Introduces and summarises the changes to IHT on pensions, including the rationale for the change, and the impacts of these changes.
• Sets out how the new changes will operate in practice from 6 April 2027.

No changes were proposed to pension commencement lump sums, tax relief and the annual allowance(s) remain unchanged. Pensions have maintained their tax advantage status during the members lifetime and remain a vital part of retirement planning.

Recent changes to the inheritance tax (IHT) treatment of pensions could significantly impact individuals and families. Previously, pensions could be passed on free from IHT providing a tax-efficient means of transferring wealth. Additionally, if an individual passed away before age 75 pension funds were free from income tax when taken as a lump sum or regular payments which remains unchanged.

However, with the removal of the IHT exemption from April 2027 beneficiaries could potentially face a dual tax burden. While the existing exemption for spouses and civil partners remains, other beneficiaries will see pension funds become subject to both income tax (if the deceased was over 75) and IHT leading to substantial tax liabilities particularly for larger estates.

With this change some clients will begin to review their current financial plans which will be of particular interest for clients who have maximised their pension contributions following the removal of the lifetime allowance. With unused pension funds now in scope for IHT individuals may wish to consider alternative strategies in the mitigation of IHT such as gifting or trusts.

Inheritance Tax

Adjustments in Business Property Relief (BPR)- 100% relief on the first £1 million of qualifying business and agricultural assets, but only 50% thereafter- forces high-value estates, particularly family-owned businesses, to reassess succession and wealth transfer plans. As such, it is likely that Advisers will be considering outcomes such as re-structuring businesses and encouraging clients to consider making gifts sooner rather than later before these changes take effect in April 2026.

AIM shares will no longer be fully exempt from inheritance tax, but the government has promised a 50% relief meaning an effective tax rate for IHT of 20% instead of the usual 40% also in play from April 2026. On a positive note, we observed a rally in the AIM index ultimately reflecting the fact that there are still incentives to support the growth of smaller UK companies.

Nil Rate Band

The current nil rate band for IHT, which applies to all estates frozen at £325,000, and the residence nil rate band frozen at an additional £175,000 for estates under £2m until April 2030, an extension of two years on the previously announced freeze to April 2028. The NRB has now been frozen since 2009 and in doing so casts the ‘IHT net’ wider and is more likely to capture a broader spectrum of estates. Further freezes will place a greater financial burden on families with a clear opportunity for larger estates seeking financial advice to mitigate tax exposure.

Rising property prices have pushed many average estates above the current NRB. For instance, the average UK house price now stands at £293,000, leaving just £32,000 before the threshold is met. In many areas, home values have exceeded this, making a portion of even average estates subject to IHT.

This trend could place a heavier financial burden on families, potentially reducing the inheritance passed on for mortgage payments, education, or retirement. Larger estates may seek financial advice to mitigate tax exposure, but smaller estates may lack such support, increasing the tax burden on those less equipped to manage it.

Capital Gains Tax

There is no denying that the rise in Capital Gains Tax (CGT) rates to 18% and 24% puts immediate pressure on clients with appreciating assets. The shift demands proactive approach, placing emphasis on timing and maximising current allowances to soften it’s impact. A closer look at the Budget document reveals that the new rates apply immediately for disposals made on or after 30 October 2024 – an essential detail with immediate impact.

It is most likely that the changes announced will reshape some established financial planning strategies.

Stamp Duty

As a result of the budget we will see raised Higher Rates for Additional Dwellings (HRAD) from 3% to 5%, effective from 31 October 2024. This essentially means that if the standard Stamp Duty Land Tax (SDLT) rate on a property purchase is 5% buyers of second homes or buy-to let properties will now pay a total of 10% (the standard 5% + the 5% HRAD surcharge). Additionally, corporate bodies purchasing properties over £500,000 will see an increase from 15% to 17%.

These changes are intended to reduce the attractiveness of residential property purchases for investors and businesses, favouring owner-occupiers and first-time buyers instead.

Income Tax Threshold Freezes

With wages continuing to rise alongside inflation but tax thresholds remaining frozen more people will find themselves in higher tax brackets-often referred to as fiscal drag. For many middle-income earners, this will result in a great tax burden without any real boost in purchasing power.

Referencing the Office for Budget Responsibility (OBR) October 2024 outlook it is inferred that over four million additional taxpayers are expected as a direct result of the freezes by 2027/28.

Despite plans to unfreeze thresholds from 2027-28, the expected income the government will expect to receive from income tax and NICs is projected to grow by £48 billion by 2029-2030.

National Insurance

We observed an increase to Employers National Insurance equating to 1.2%, coupled with a secondary threshold cut to £5,000, the context of which to raise revenue without increasing individual taxes directly.

The result of these changes suggests that a £30,000 gross salary would now incur an additional £865.80 in employer NI, pushing the total cost to £33,750 from £32,884.20. For many businesses this is likely to drive a reassessment of pay structures and business planning in the shorter term. Overall, this may drive constrained wage growth and hiring for certain employers ultimately impacting household incomes.

It is likely this Salary sacrifice schemes may gain in popularity as a potential strategy to offset these costs which would allow employers to reduce their NI liability alongside enhancing employee benefits, such as pensions. Of course, this is dependent on employers passing on any retained savings hence there is a potential this benefit could be negated.

Non-domicile tax status

In line with the government’s focus on closing tax loopholes, the 2024 Autumn Budget introduced a significant change to the tax treatment for non-domiciled individuals in the UK. Effective from 6 April 2025, the concept of non-domicile tax status will be abolished and replaced with a new residence-based tax system. Under this modernised regime, taxes will be based solely on residency, ensuring that all individuals residing in the UK contribute taxes within the UK. This shift aims to create a fairer, more transparent tax system for all who make the UK their home.

VAT on private school fees

Starting 1 January 2025, private school fees in the UK will be subject to the standard 20% VAT, ending the current VAT exemption. Additionally, business rates relief for private schools will be removed from April 2025. These changes are projected to raise an extra £1.8 billion per year by 2029-30.

This is a factual summary correct as at date of publication (01.11.2024). The article does not constitute financial advice and clients should not act solely on the basis of the information in this article.

State Pension

The Government has confirmed that the State Pension Triple Lock will remain in place, ensuring annual increases to the basic and new state pension by the highest of earnings growth, inflation, or 2.5%. From April 2025, pensions will rise by 4.1%, bringing the full new state pension to £230.30 per week. This increase will provide over 12 million pensioners with up to an additional £470 per year in state pension payments.

Written by Matt Wood – Managing Director – Asset Management Financial Advisers Ltd

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