The first Labour Budget in 14 years, and much time has been spent in speculation based on comments made (and sometimes retracted), column inches filled and leaks allowed. As a result, there has been significant recent activity in relation to pensions, both in terms of input and the taking of benefits, and asset disposal in light of a possible increase in CGT rates.

Rachael Reeves delivered the Budget, the first by a female Chancellor, which was one of the biggest tax raising Budgets in modern times as she seeks to raise £40bn to cover the fiscal deficit and fix public services.

The section below is our summary of the relevant changes for our industry and who these will particularly affect. Section 9 then looks at the longer-term challenges of ensuring security in later life for all and what needs to be considered by governments, present and future, to avoid a retirement crisis for many.

Main highlights for the financial services sector

Pensions

From 6 April 2027, pension death benefits (except for dependants’ scheme pensions and charity lump sum death benefits) will be in scope for inheritance tax (IHT) following the death of a pension scheme member, reinforcing the government’s view that pensions should be for later life provision and not intergenerational wealth transfer.

The pre/post age 75 position remains with income tax payable on payments to beneficiaries on death after age 75. Income tax will also be due on any lump sum death benefits that exceed the lump sum and death benefit allowance (LSDBA). In both instances the income tax will be payable on the amounts paid after the deduction of IHT by the scheme administrator.

There is a consultation on how the changes are to be administered by pension scheme administrators (PSA) and members’ personal representatives (PR), with responses to be submitted by 25 January 2025. The PSA and PRs will have to liaise to determine the amount of IHT due and their respective liabilities.  HMRC plan to develop a calculator for use by the PRs to determine how the nil rate band (NRB) is to be allocated across the estate, and they will then advise the PSA of any IHT due in respect of the pension. The PSA will then pay this to HMRC before paying the benefits to the beneficiaries.

Where a spouse or civil partner is a beneficiary, the IHT spousal exemption will apply.

Business Relief and Agricultural Property Relief

From 6 April 2026, the combined value of agricultural and business property qualifying for 100% relief will be limited to £1m. Any qualifying property value in excess of this limit will receive relief at 50% which equates to an effective rate of 20%. This is a blow to farmers, some of whom may not now be able to pass on the business that they have built up to the next generation.

Relief for shares not listed on recognised stock exchanges (e.g. AIM) will also be restricted to 50% and are outside of the £1m threshold mentioned above. The risk of such investment will therefore need to be reassessed potentially limiting funding for the relevant companies.

Capital Gains Tax

Rates will increase from 10% and 20% to 18% and 24% respectively (matching current rates for residential property). This change took effect from 30 October 2024. The annual exempt limit remains unaltered at £3,000 (£1,500 for trusts).

This will further improve the relative tax position of investment bonds compared to the GIA.

The rate applicable to Business Assets Disposal Relief (BADR) will increase from 10% to 14% from 6 April 2025 and will increase again to 18% from 6 April 2026. The £1m lifetime limit remains unaltered.

National Insurance (NICs)

The employers’ NICs rate will increase to 15% from 2025/26. In addition, the threshold (the point at which employers start to pay NICs for employees) will also be reduced from £9,100 to £5,000 p.a. These changes are estimated to raise £25bn meaning that employers will bear the brunt of the £40bn tax raising target.

The Employment Allowance will increase from £5,000 to £10,500 to be deducted from an employer’s NICs bill with this being expanded by removing the £100,000 eligibility threshold. This aims to protect smaller employers from the effect of the employer NICs changes.

Thresholds

• Income tax and National Insurance – remain unchanged but will now increase in line with inflation from 6 April 2028. ‘Fiscal drag’ means that many individuals will continue to be pulled into the higher rate brackets as a result of earnings growth which would not have been the case if the thresholds were increased year on year in line with inflation.
• Inheritance tax – the current freezing of the nil rate band and residential nil rate band thresholds will be extended by two years to 5 April 2030. As a result, increasing numbers of estates will now find themselves liable to IHT.

Stamp Duty Land Tax (SDLT)

The rate for Higher Rates for Additional Dwellings will increase from 2% to 5% from 31 October 2024.

ISA

The proposal for a British aim has been scrapped as expected. Subscription limits remain unchanged and frozen until 2030.

QROPS Transfers

From 31 October 2024, any transfer from a UK registered pension scheme to a QROPS in Gibraltar or EEA country will be subject to the 25% overseas transfer charge if the member remains resident in the UK.

Non Doms

The non dom regime is to be abolished from 6 April 2025 with the concept of domicile being replaced with a Foreign Income and Gains (FIG) regime. No tax will be paid on foreign income or gains for the first four years of residence if an individual opts-in to the new scheme and has been non-resident for at least ten years.

Offshore trusts (excluded property trusts) can no longer be used to shelter assets from IHT while the proposed 50% tax reduction on first year foreign income is now to be scrapped.

The Chancellor was at pains to tell us that the economy had been left in a bad way by the previous government, so unpopular measures were needed to restore stability and growth. As well as seeking to raise £40bn of taxes, she has rewritten the borrowing rules to allow more borrowing as well as committing to large scale public spending. Only time will tell if this medicine is ‘just what the doctor ordered’.

This information is intended as general guidance only based on our interpretation of current legislation and the changes proposed in the recent budget. It is not a recommendation or a financial promotion.  Integrated Financial Arrangements Ltd does not accept any liability for any errors or omissions.