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Although some of the more concerning rumours did not come to fruition, there were still some significant surprises in last week’s Budget.

Despite all the speculation, the annual pension tax allowance and the tax fee lump sum will remain unchanged. However the big shock of the day for pensions was the inclusion of unused death benefits and pensions within an estate for IHT purposes. This will have a direct impact on your future pension and inheritance planning and although we don’t have all the details yet, we will be working with our clients to ensure your arrangements are as tax efficient as possible.

According to government figures, Capital Gains Tax (CGT) is paid by fewer than 1% of adults each year and remains internationally competitive. That may be cold comfort to those affected by the increases on disposals from 30 October which will rise to bring them in line with those payable on residential property sales.

Employers will be facing several increases from April 2025 as National Insurance Contributions will rise along with the National Living Wage and the National Minimum Wage.

And lastly, the headlines have been dominated by stories from the farming community who are reeling from their IHT bombshell.

Here are the main points:

Pensions

From 6 April 2027 unused pension savings or death benefits will be included in your estate for IHT purposes. This applies to both Defined Contribution and Defined Benefit schemes and equally to both UK registered schemes and Qualifying Non-UK Pension Schemes.

A small number of specified pension benefits will remain outside scope for IHT including where funds can only be used to provide a dependant’s scheme pension.

As part of these changes, pension scheme administrators will become liable for reporting and paying any Inheritance Tax due on unused pension funds and death benefits.

However, this is all subject to a consultation that will run until 22 January 2025 so we have yet to find out all the detail. We will keep you updated as and when details are published.

The annual pension allowance will remain at £60,000 per year and pension tax relief has been kept at 20% for basic rate taxpayers, and 40%/45% for higher rate payers.

The Tax Free Lump Sum has also been left unchanged at 25% of your pension.

The Triple Lock will remain in place and will upgrade the state pension by the greater of average earnings, inflation and 2.5% each year.

The state pension will rise in April 2025 from £221.20 per week to £230.25 a week.

Inheritance Tax (IHT)

The IHT threshold is frozen until 2030 and remains at £325,000. The Residence Nil Rate Band can mean an additional £175,000 if the property is passed to a direct descendant. Click here to read our RNRB Factsheet for the details.

Capital Gains Tax (CGT)
Effective 30 October 2024, CGT on disposals will increase from 10% to 18% for basic rate payers and from 20% to 24% for higher rate payers. This will bring it in line with the CGT rates on residential property.

The current CGT annual allowance is £3,000.

Business Asset Disposal Relief and Investors’ Relief will increase gradually and will rise to 14% from 6 April 2025 and to 18% from 6 April 2026.

Savings
The ISA limits will remain unchanged until April 2030. These are £20,000 per person for adults and £9,000 per child for a Junior ISA.

Stamp Duty
The stamp duty surcharge payable on the purchase of additional properties increased from 3% to 5% effective 31 October. Contracts exchanged prior to this date are unaffected.

Tax Rates
The main rates of income tax were left unchanged, although from April 2028 personal income tax and National Insurance contributions will be uprated in line with inflation.

The Non-UK domicile tax regime will be abolished from April 2025 to be replaced by a residence-based regime.

High Income Child Benefit Charge (HICB)
Employed individuals will be able to pay their HICBC through their tax code from 2025. The government has announced £4 million to invest in the tax system to enable HMRC to pre-populate self-assessment tax returns with child benefit data.

National Insurance Contributions
Employers NIC will increase by 1.2% to 15% and secondary threshold when employers start paying NICs will drop from £9,100 to £5,000.

Wages
Employers are also faced with an increase in the National Living Wage which will rise to £12.21 and the National Minimum Wage for 18-20 year olds will rise to £10 from April 2025.

Corporation Tax
The Corporation Tax Small Profits Rate and marginal relief will remain the same.

VAT
General VAT rates remain the same however 20% VAT will be charged on education and boarding services by private schools, from 1 January 2025.

The government will also remove business rates charitable rate relief from private schools from April 2025.

Agricultural and Business Property Relief
From April 2026 agricultural and business assets valued over £1m (subject to the usual threshold and allowances) will be charged IHT at 20%. Figures have been banded back and forth over how many farms this will actually affect each year, ranging from 500 to 70,000.

As always the devil is in the detail and we will be working with our clients to make any necessary changes following these announcements.

For more information and to discuss your own circumstances please contact us – tel: 01789 263257 or email: justask@jjfsltd.com

Information in this document is valid as at 5 November 2024. Contact us for current information specific to your circumstances.