Legal News | 31.10.24

The Autumn Budget 2024

After much anticipation and speculation, Rachel Reeves has now delivered the Autumn Budget. We set out and highlight the main points that will affect many of our clients in the coming months and years.

IHT – What will change?

Pensions

Under current rules, pensions are usually passed on tax-free if you die under age 75 (or taxed at the beneficiaries’ marginal rate of income tax if you die over age 75) but in most cases pensions do not attract IHT.

Yesterday’s Budget announced that from 6 April 2027 most unused pension funds and death benefits will be included within the value of a person’s estate for Inheritance Tax purposes.  Pension scheme administrators will become liable for reporting and paying any Inheritance Tax due on pensions to HMRC.

This is a big change and will have an impact for many clients on their retirement planning and finances.  Many more people’s estates are likely to be caught in the IHT net as a result of this change.  The new rules may see more pensioners using funds from their pensions, rather than leaving them untouched (as has become commonplace), and deciding to pass on more funds to the next generation during their lifetimes.

IHT Reliefs

The Chancellor also announced that changes will apply to agricultural property relief and business property relief from 6 April 2026. Relief of up to 100% from IHT is currently available on qualifying business and agricultural assets, irrespective of the value of the assets involved.

While the 100% rate of relief will continue for the first £1 million of combined agricultural and business property, from April 2026 IHT will be charged at 50% thereafter.  This is a big change for individuals and trusts holding agricultural and business assets; all those impacted will want to consider their position and plans over the coming months.

The government will also reduce the rate of business property relief from IHT available from 100% to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM.  Many individuals invest in the AIM market now because of the favourable IHT relief that has applied after a two-year period of ownership.  That has now changed (with an effective 20% charge to IHT on such holdings), and many individuals will therefore be impacted.

Residence and Domicile

Under current legislation, no IHT is due on non-UK assets of Non-Doms until they have been UK resident for 15 out of the past 20 tax years, however, this regime will be abolished from 2025. Instead, the government will introduce a new residence-based scheme with “internationally competitive arrangements” for those coming to the UK on a temporary basis.

IHT – What will stay the same (and why that’s not necessarily a good thing!)

Inheritance Tax thresholds still remain frozen.  The IHT Nil Rate Band (currently £325,000) and the Residence Nil Rate Band (currently £175,000) will remain the same until 5 April 2030. These will also continue to be transferrable between spouses and civil partners (should it be available for the surviving spouse/civil partner to inherit).

Inheritance tax will continue to be taxed at a rate of 40% for any assets which exceed the available nil rate band.

This means that a married couple can continue to leave a maximum £1million IHT free to children and grandchildren.  However, we are all aware of inflation over the last few years, and with pensions being included the impact of this ‘fiscal drag’ will see even more estates caught by IHT.

CGT – What will change?

As of 30 October 2024, the rate of CGT (excluding gains from residential property) has been increased. The basic rate is increased to 18% (from 10%) and the higher/additional rate of CGT is increased to 24% (from 20%).  This will impact individuals and trustees realising gains, eg on the sale of investments, immediately (though not by as much as some had feared).  Having said that, the slow erosion of the CGT annual exempt amount over recent years does mean more and more disposals will be chargeable to CGT and so careful and continued planning makes sense.

Business Asset Disposal Relief (BADR) will retain its £1million lifetime allowance and will remain at 10% this year, but rise to 14% from April 2025 and then rise to 18% from April 2026.

CGT – What will stay the same?

Despite all the rumours to the contrary ahead of the Budget, the rates of CGT on residential property will remain at 18% and 24%.

As mentioned above, BADR will maintain the lifetime limit for business asset disposal relief at £1m.

Stamp Duty Land Tax

A Hallowe’en fright regarding SDLT, the higher rate of SDLT (the surcharge) increases as of 31 October 2024 from 3% to 5%.

The SDLT surcharge applies to second homes, so impacts those purchasing a second home who will now have to pay this higher rate of SDLT.

Income Tax

Despite predictions that the Chancellor would continue the freeze in income tax thresholds beyond 2028-2029, this has not proved to be the case.  From 2028-2029, the income tax thresholds will rise in line with inflation.

VAT on Private School Fees

It is no surprise that Rachel Reeves has confirmed that VAT on private school fees will be introduced in January 2025.

From April 2025 the government will also introduce legislation to remove private schools’ business rates relief.

If you would like further guidance on managing your affairs in line with these new legislations, please do get in touch with the Wansbroughs’ Private Client Team.