Autumn Budget 2024: Overview and Implications for Pensions, Wealth Transfer and Investment
Speculation as to the contents of the budget has been rife for the past few months especially in relation to Pensions Tax Relief and Capital Gains Tax on Property sales, and many people may have made financial decisions in the past few months that are less than optimal given the actual announcements in the budget.
In her first Budget announcement, Chancellor Rachel Reeves has navigated a challenging financial landscape marked by a reported “£22 billion black hole” deficit while committing to avoid tax increases for “working people”. As a result, her budget proposals include significant changes impacting pensions, inheritance tax (IHT), and capital gains tax (CGT), particularly relevant for those nearing retirement or concerned about wealth transfer.
Key Changes Impacting Retirement Planning
Increase in Capital Gains Tax
In good news for property investors looking to sell assets in order to retire, the Chancellor announced the Capital Gains Tax (CGT) rate on residential property will remain unchanged at 18% and 24%.
However, for other assets such as shares, the CGT rate is due to increase for basic rate taxpayers from 10% to 18% and for higher or additional rate taxpayers, CGT will increase from 20% to 24% for disposals made on or after 30 October 2024.
Reduction of Business Asset Disposal Relief (BADR)
In a blow to business owners nearing retirement, the Chancellor announced the widely used CGT relief on the sale of business assets will be reduced.
The BADR Relief allows for some taxpayers to benefit from a 10% capital gains tax on the sale of part or all of a business. BADR is currently 10% tax on gains made when founders sell their businesses, up to a threshold of £1m. The BADR will rise to 14% from 6 April 2025, and it will rise further to 18% from 6 April 2026 to bring it in line with CGT rates.
The lifetime limit for Investors’ Relief will be reduced from £10 million to £1 million for all qualifying disposals made on or after 30 October 2024, matching the lifetime limit for BADR.
Implications: This change could dramatically affect those nearing retirement who have invested in a business and now wish to sell the business in order to fund their retirement.
Key Changes in Wealth Transfer
Changes to Inheritance Tax (IHT)
The Chancellor confirmed IHT thresholds which includes the nil rate band of £325,000 and an additional residence nil rate band of £175,000 where a primary residence is owned, will not be altered in the 2024 Budget. The current inheritance tax thresholds will be frozen until April 2030.
Restrictions to Agricultural and Business Property Relief
This relief allows certain agricultural and business assets to be passed on death, free of Inheritance tax.
From April 2026, the 100% rate of relief will apply to the first £1 million of combined agricultural and business assets only. Thereafter, only 50% relief will apply, reducing the effective rate of Inheritance tax on affected assets from 40% to 20%.
Inheritance Tax on Pensions
From April 2027, inherited pension pots will form part of an estate (where currently they are exempt) and therefore subject to the usual 40% IHT tax if above the £500,000 threshold.
Key Updates on Savings and Investment Allowances
Starting Rate for Savings
The government will introduce legislation in the Finance Bill 2024-25 to maintain the 0% starting rate for savings income at its current threshold of £5,000 for the tax year 2025-2026. This change will apply across the UK.
Annual Subscription Limits for ISAs and Similar Accounts
As announced in the Autumn Budget 2024, the annual subscription limits will remain unchanged until April 2030 for the following accounts:
- ISAs: £20,000
- Junior ISAs: £9,000
- Lifetime ISAs: £4,000
- Child Trust Funds: £9,000
These measures will apply throughout the UK.
Key changes impacting investment
Reduction in Relief on Unlisted Shares
The government will also reduce the rate of business relief available from 100% to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as the Alternative Investment Market (AIM Shares), without the benefit of the £1 million allowance mentioned above.
Property investment: Second Property Stamp Duty Land Tax Increase
Anyone thinking of investing in a second property will be impacted by the “Higher Rates for Additional Dwellings” surcharge on Stamp Duty Land Tax (SDLT); this will increase from 3% to 5% from 31st October 2024 in England.
This increase will affect second home buyers, landlords, and businesses purchasing residential properties in England.
The standard rate of Stamp Duty Land Tax (SDLT) for corporate bodies buying “dwellings” in England priced over £500,000 will also rise from 15% to 17%.
The 2024 Budget will affect aspects of financial planning, particularly for those approaching retirement or concerned about inheritance. It is essential for individuals in these situations to consult with financial planners to navigate these changes effectively and adjust their strategies accordingly to secure financial well-being for future generations.
For further information on the changes announced in the Budget, please see the Autumn Budget Summary from TaxAssist Accountants