In previous updates, in the lead up to the Budget, I’ve suggested that the Chancellor’s Autumn Budget was likely to be nowhere near as bad as the headlines and sound bites indicated. This turned out to be the case, especially around the Capital Gains Tax regime.
The Budget appears to have penalised businesses by increasing Employer’s National Insurance, the tax on businesses when sold and now shares in a business are no longer completely exempt from inheritance tax. The Budget, as well as raising taxes, was supposed to give cause for optimism but in many quarters, this is not sitting easily. More about this later.
On the personal financial planning side of things, aside from the increase in Capital Gains when disposing of assets, the biggest impact is around personal pensions as they will no longer be exempt from inheritance tax. In some ways, it is significant but beyond the age of 75, beneficiaries are already exposed to tax, albeit income tax, when inheriting pensions.
Markets wise, UK gilt yields have risen quite strongly and the pound has weakened and, in the short-term, equity markets don’t like what they see, for now anyway.
Let’s take a look at how the landscape has unfolded.
On our agenda this week:
- Pensions
- Capital Gains Tax
- Impact on businesses
- Other Budget news
- What’s been the impact on markets?
- Blue Sky’s comments
Pensions
- Despite speculation that the tax-free lump sum allowance could be withdrawn or capped, there were no changes. We always felt this was unlikely as it would have implications for defined benefit pension schemes (public sector).
- The tax treatment on death, between public sector pensions and private pensions are different, as the benefits of a defined benefit pension die with the owner and beneficial partner. A private pension (known as a defined contribution scheme), can be transferred to beneficiaries on death and is free of inheritance tax. As many of you will know though, at age 75, the pension in the hands of certain beneficiaries is subject to income tax at their highest rate. As from April 2027, all private pensions will potentially be taxable for inheritance, subject to thresholds.
- State pension benefits are set to rise by 4.1% from April 2025 as the triple lock is retained. The full state pension will increase from £221.20 per week to £230.25 per week. For those who reached state pension age before 6th April 2016, the basic state pension will increase from £169.50 per week to £176.45.
Financial Planning Implications
For many, it means that more people will be dragged into the inheritance tax regime, particularly as the thresholds have been frozen. When we are modelling for the future, it is likely that those in the basic rate tax regime will be more likely to take pension benefits, as income tax at 20% is much lower than the 40% tax liability on inheritance.
Continues…
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Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.