It’s all done and dusted. The ink is dry. After about 900 different rumours from 300 different people the rumour phase is finally over. The most anticipated autumn budget in years has happened. The announcements have heralded the largest Budget tax rise since 1993.
Labour’s commitments to hold income tax, VAT, NICs and corporation tax rates had severely constrained room for fiscal manoeuvre. The result was that Rachel Reeves resorted to employer’s NICs, increasing them from 13.8% to 15% from the 6th of April 2025- arguably outside her fiscal no go area- to raise over £25.7bn a year in 2029/2030 out of a total extra tax revenue of £41.2bn. Your P60 or your payslip remain unaffected even if your salary probably won’t go up next year as many businesses will try to offset the increased tax with lower wages.
On the plus side, from 2028/2029 the personal tax allowance of £12,570 will finally be uprated in line with inflation. An end to the fiscal drag is in sight!
Our overall take however, here at Thera Wealth was that things could have been worse. And that for the most part it is business as usual. There is no planning required that is particularly urgent.
We won’t be going into every measure of the budget in this article exhaustively (eg. for non-domiciles or carried interest ) but focus on those that impact our core niche- successful executives in the later stages of their career who are looking to explore their retirement options. We summarise below the main changes but also look at planning suggestions to consider.
Capital Gains Tax (CGT) and Business Asset disposal relief (BADR).
Capital Gains Tax was thankfully aligned only with property CGT and not income tax.. As we had warned in our previous article, the change was implemented immediately.
From 30th October, the lower rate of CGT for basic rate taxpayers will increase from 10% to 18%. The higher rate of CGT will increase from 20% to 24%. And the rates for sales of residential property remain unaltered at 18% and 24%.
BADR got badder (worse). This is the lower rate of tax that entrepreneurs pay for the first million that they receive when they sell their business. This stays at 10% for 2024/25, then increases to 14% from 2025/26, and again to 18% from 2026/27.
However all the Adult, Junior and Lifetime ISA allowances remain intact and frozen until 2030. The £3,000 (much reduced by the previous government) annual exempt amount from CGT is untouched, and capital gains continue to be uprated on death (and replaced by inheritance tax , more on which later). Losses can still be carried forward indefinitely.
Planning Points
ISAS (and pensions) are even more valuable than before. USE THEM OR LOSE THEM. As are direct investments into gilts, offshore bonds and tax advantaged investments such as VCTs and EISs. You should use your annual 3,000 exempt amount and look to transfer assets to your spouse to use their exempt amount and possibly lower tax rate. If you are in the middle of selling your business, it’s worth trying to conclude the sale before April 5th 2025.
Pensions
For the most part, to the relief of all of us pensions were left largely untouched, except with regards inheritance tax.
There were NO CHANGES, to income tax relief on pension contributions, no changes to the annual pension contribution allowances (still £60,000 a year) , carry forward or the tapering rules, no reimposition of the lifetime allowance and no changes to the maximum tax free cash limit . Happy Days.
The increase in National Insurance Contributions for employers will make salary sacrifice more attractive for them as a way to provide employee pensions.
The big change was that unused or left over pensions are now subject to Inheritance tax (IHT) on death but not till the 6th of April 2027. The usual income tax rules on pensions remain (tax relief on the way in, 25% tax free cash and marginal income tax on the way out). If you die before 75, there will be no income tax applied to the beneficiaries of your pension. But now IHT will be applied (both before and after 75). There is a consultation till January but don’t expect any changes to the new law.
The spousal exemption still applies -all transfers to your spouse upon death are free of inheritance tax.
Planning Points
Pensions remain a great tool to save money, given the upfront tax relief. Work out your unused allowances for the previous three tax years before tax year end and use them, otherwise you will lose your £40,000 allowance from the 2021/2022 tax year. If your total income is in the £100,000-£125,000 range, making pension contributions is the best way to reclaim your lost personal allowance of £12,570. If you are a business owner, they are the most tax efficient way to extract profit while also reducing your corporate tax liability.
However, some pensions were used purely as legacies by wealthy individuals for their children. It makes sense, from April 2027 and not before, to look at drawing down (and possibly gifting) these funds in retirement rather than leaving them untouched. And it also makes sense to ensure that you nominate your spouse as the beneficiary of your pension, to delay the collection of IHT to the second death. We can look at more specific planning on this nearer the time.
Inheritance Tax
Apart from the changes to pensions described above there were some other important changes to the IHT regime.
The building blocks however of inheritance tax planning are still very much in place. The nil rate bands, the 7 year gifting rule, the use of trusts, the annual gifting exempt amounts, the gifting from normal expenditure all remained untouched. The nil rate bands which at present are set £325,000 and £175,000 until 5th April 2028 will now be extended for a further two years until 2030. This is the so-called fiscal drag which has been prevalent in budgets of late. Frozen allowances means asset price inflation leads to higher tax revenues for the government as more estates come into the scope of IHT.
The big change announced was the reform of agricultural property relief and business relief. Up till now, you could pass down your business or your farm to the next generation without paying inheritance tax. You could also invest in products that held private businesses or aim shares, and after two years there would be no inheritance tax to pay.
No longer. From 6th of April 2026 , you can bequeath up to £1m of your business or farm (combined) and pay no tax. Above £1m effectively you will pay 20% inheritance tax. For investments in Aim shares however, the 20% inheritance tax now starts from the first pound- there is no £1m allowance.
Planning Points
All the IHT planning tools such as lifetime gifting, normal expenditure and trusts still very much remain at our disposal. Whole of life insurance also now arguably becomes more important certainly for business owners. Business relief investments up to £1m that invest in unquoted shares should still be considered for those looking to mitigate IHT but you should be aware of the risks involved. Aim shares are less attractive but at least the relief from these has not been abolished entirely.
OTHER MEASURES -SDLT/Holiday lets/Child benefit
Elsewhere in a blow to the buy to let sector, the Chancellor announced that the higher rates of Stamp Duty Land Tax (SDLT) payable by purchases of additional dwellings (second homes) will increase by 2 percentage points from 3% to 5% above the standard residential rates. This applies to transactions after the 31st October 2024.
The special tax advantages that landlords have enjoyed up till now for furnished holiday lets disappear from 6th of April 2025 and income is just treated as normal property income.
Landlords and their property investments have always been an easy target over the last ten years for governments to raise tax and encourage them to sell to first time buyers. It has worked well overall. You can read our views on property investment as an accumulation strategy here. We are not fans to say the least.
The High income Child Benefit Charge which effectively tapers down the child benefit currently applies to incomes above £60,000. At £80,000 the charge offsets all the child benefit received. The previous government had legislated that the £60,000 should apply to household incomes rather than one person’s earnings in the household. This has now been scrapped. It’s still worth using personal pension contributions, if you are in this earnings band, to effectively bring down your taxable earnings and avoid paying the charge.
IN SUMMARY
This budget could certainly have been a lot worse, but it will still mean a significant increase in the overall tax burden. The reality of the situation is stark- our population is ageing, births have fallen and there is more and more demand for more investment in public services and the health system. This means that over time, the UK tax burden will continue to rise to converge with the rest of Europe. On the plus side, better functioning social services will lead to growth.
But choices and options exist. There are many perfectly acceptable and legal ways to mitigate the tax burdens. Ignore them at your peril.
Don’t leave money on the table. Come and talk to us to find out how we can help
We are not offering specific advice in this post, and clearly everybody’s situation, risk tolerances and goals are different. For advice specific to you, please reach out to us.
- The value of investments and any income from them can fall as well as rise. You may not get back the full amount invested.
• The favourable tax treatment of ISAs may be subject to changes in legislation in the future.
• This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
• The value of pensions and any income from them can fall as well as rise. You may not get back the full amount invested.
