The Autumn Budget

The imposition of Inheritance Tax on pensions was a surprise announcement.

For clients in receipt of Defined Benefit pensions (such as NHS, USS, Local Government, Civil Service), this will not impact these.

However, where clients have built up pension funds as a Defined Contribution (such as a personal pension), the value of the pension fund (on death) will fall into someone’s estate.  If you are married or in a civil partnership, the normal spousal exemption still applies, so you can inherit a pension fund without Inheritance Tax applied.  However, if you are not married or in a civil partnership then – like all other assets in someone’s estate - 40% Inheritance Tax will be levied if your estate exceeds the Nil Rate band(s).

Similarly, if you pass the pension on to your children, your pension fund may be liable to Inheritance Tax.

It is expected that pension schemes will be reporting to the estate executors and to HMRC.

This will undoubtedly be an area which we will be discussing with clients.  Some of the options could be: looking at purchasing an annuity; or starting to spend your pension capital sooner.  It is quite a complicated tax to deal with and the announcement in the Budget will not simplify this.

For clients in relationships, who are not married or in a civil partnership, this might just nudge you to ‘tie the knot’...?

To give some context, Inheritance Tax still only applies to small minority of estates in the UK (less than 5%). It is also interesting to look at how the UK compares to other countries in this regard.

The Financial Times did some analysis in 2023 using OECD figures. Many countries have no Inheritance Tax at all (including Sweden, Norway, Australia and Canada among others) and where countries do have Inheritance Tax, the amount tax raised from it is relatively small. Only four countries (based on 2021 figures) raised more than 1% of total tax receipts from Inheritance Tax (Belgium, France, Japan and South Korea).

It was announced that there would an increase in the higher rates for Additional Dwellings of Stamp Duty Land Tax from 3% to 5% from 31 October 2024. These higher rates apply to purchases of second homes, buy-to-let residential properties and companies purchasing residential property.

The policy intent is that those looking to move home or purchase their first property will have a comparative advantage over those purchasing additional property.

Those who exchanged contracts prior to 31 October 2024 are not affected by this rate increase.

In line with the Labour manifesto, recent reductions in individual NI rates were not reversed.  However, employers will face an increase in the rate of NICs they pay and the point at which they pay it.  Rates will increase from 13.8% to 15% from 6 April 2025. The Secondary Threshold (the point at which employers become liable to pay NICs) on employees’ earnings will reduce from £9,100 to just £5,000, a year.

To help smaller businesses with this additional cost, the Employment Allowance will be increased from £5,000 to £10,500. The £100,000 threshold for eligibility will also be removed, expanding this to all eligible employers with employer NICs bills from 6 April 2025.  The national minimum wage also increased by 6.7% to £12.21p/hr from April 2025 and this will bring it closer to the Real Living Wage (set by the National Living Wage Foundation) of £12.60 p/hr.

The Chancellor announced the largest ever increase to the earnings limit for anyone receiving the Carer's Allowance. If you are an unpaid carer, you will be able to earn £45 more, per week, without losing your entitlement to Carer's Allowance.  From 7 April 2025, the earnings limit for carers will rise from £151 to £196.  However if you earn even a penny over this, the entire benefit will be clawed back with no ‘tapering’ applied.

Last year, with Labour in opposition, Rachel Reeves announced her ambition to be “Britain’s first green Chancellor”.  The Budget does include a wide range of measures on relevant themes… some have been welcomed (new incentives for clean-energy investment and electric vehicles); some have been criticised (freezing fuel duty); and some have raised concerns (reviewing future funding for nature-friendly farming).  We’ll be looking into the “small print” on these and will watch developments with interest.

As we prepare to hit "send" on this newsletter it's now confirmed that Donald Trump has won the US Presidential Election.  The Republican party also looks set to control both the Senate and the House of Representatives.  Trump, who has won both the electoral college and the 'popular vote', has a clear mandate to govern.  The concerns of an indecisive and contentious result have been avoided.

On the markets, the dollar has risen overnight, UK and European markets are predominantly 'up' this morning, and the US markets are expected to do likewise.  The longer-term economic impacts of President Trump's policies remain to be seen, including whether and when his pre-election talk of tariffs is realised.  We will, of course, keep a close eye on how things develop.

We hope you’ve found this Budget update helpful.  We’ll be factoring in the Budget changes as part of your ongoing review service – and, of course, if you have any immediate questions please do get in touch.  We’re always here to help.