We’re sure your inboxes have been inundated with budget roundups already, so we’ll keep this one brief. The technical bit for us to get our heads around is as follows:
The introduction of pensions into the IHT landscape (from 6th April 2027) was the biggest change being proposed. This is obviously something that will no doubt change behaviour going forward.
It also appears that pensions inherited after 75 remain subject to income tax, meaning you have the double whammy of a possible IHT charge applying to a pot, followed by varying levels of income tax on withdrawals. If the recipient chooses not to spend the inherited pension, and pay the income tax, there is the potential for inheritance tax on the pot. There were apparently some comments around this income tax charge being removed, but the technical consultation paper released yesterday shows a case study where this applies, so it’s all a bit unclear in this respect at the moment.
If the income tax charge remains, there is now a strong reason to use pensions to the expense of anything else after 75, which is largely the opposite of the behaviour we have had to date.
DB schemes are largely outside this, given the main benefit is a lifetime income. Lump sums however are also included and it’s important to remember that lump sums classed as pensions can also be death in service benefits.
What we also don’t appear to know is the future of the LSDBA. The LSA still has a logical place but the LSDBA, if retained, appears to hit those under 75 with a potential double tax on values above their LSDBA value. Something to watch and wait for too.
QROPs
A final note on pensions, transfers to QROPs in EEA areas or Gibraltar will now (as of 31st October) be subject to a 25% tax charge. The intention here is to remove the ‘double tax-free cash’ benefit given by the overseas transfer allowance (OTA).
On IHT, we also have quite a few impactful changes. Business relief is now only given in full on the first £1 million. This £1 million is shared between BR and Agricultural relief and when it is exceeded, only 50% qualifies (effectively cutting the IHT charge to 20% on these excess assets).
AIM shares are only 50% relievable to IHT regardless of the value held in the estate, and this clearly makes these less competitive compared to privately held BR assets.
The overall impact of the above is that trusts and outright gifts become the only real way to get unrestricted IHT relief for HNW/UHNW clients.
It is however possible to pay no IHT on the following £2m estate (assuming a married couple with direct descendants to inherit the home):
The expected change in the rate of CGT happened, but perhaps at a much less level than speculated. The rates (effectively immediately) align with property so a high increase at the basic rate (10% to 18%) compared to at the higher rate (20% to 24%).
What we have this tax year is a before and after 30th October tax rate for CGT on shares/funds. It is possible to use the CGT exemption against the assets with the highest tax rate so there might still be some planning available before the end of the tax year. Gains made between 30th October 2024 – 5th April 2025 can be offset first against the exemption, leaving gains made 6th April 2024 – 29th October to be subject to tax.
The increase in tax rates brings the gap between bonds and GIAs in terms of tax planning a lot closer. With no change to the CGT exemption or the dividend exemption, more investors will be brought into more tax on GIAs increasing the relative strength of bonds as a viable alternative.
In terms of other investments no allowances have changed. This is also the case for income and personal savings allowances. We’re already in year 7 of an unchanged ISA allowance, and heading for 10+ years at this rate. Similarly its been 5 years since any income tax bands were changed and longer when you look at the Nil Rate Band (NRB) for IHT
As a final point on investments, the British ISA has also been scrapped as was expected (and hoped for frankly).
To mop up, the announced introduction to VAT on private school fees will occur from 1st January 2025.
The additional dwellings surcharge on Stamp Duty Land Tax (SDLT) will rise from 3% to 5% effective immediately.
There are a number of changes to figures associated with benefit allowances, national insurance (classes 1 through to 3) and minimum wage.
Clients of Verve will be able to find further details of these within the relevant articles in our Tech Zone.
As always, if you have specific questions around how this impacts you or your clients (or you need help updating your templates), please pop the team an email or book a chat here.
