There is no doubt the Autumn Budget 2024 will be a very difficult budget to digest for many people, particularly those who have already taken risks and been diligent with their financial planning. Many of these people have reached a point of their lives where their hard work has allowed them to be in a strong financial position for retirement and to provide for their family, but may feel that is now being taken away and they have less time to rebuild their position.
Confirmation of the State Pension Triple lock is a rare, bright spot for many, however, reforms to bring personal pensions into the Inheritance Tax regime, could also mean more people are subject to the 40% levy.
Pensions to become subject to Inheritance Tax (IHT)
The Chancellor Rachel Reeves said she would “close the loophole created by the previous government” and will bring pensions into the scope of IHT from April 2027.
This change is sighted in the budget paper as restoring “the principle that pensions should not be a vehicle for the accumulation of capital sums for the purposes of inheritance, as was the case prior to the 2015 pensions reforms”. This significant change goes further than many experts predicted and will have a material impact on a number of families throughout the UK.
Whilst I am sure there will be no ‘sympathy’ in some quarters for those who have large pension funds, this needs to be balanced against the need to provide for retirement and the need for stability and consistency when building a financial plan. The premise of the legislation would appear to be aimed at someone who is building a pension pot with the sole intention of passing the funds on to their family free of IHT. However, the proposed legislation does not appear to cater for the person who has diligently funded their pension over a 40 year career and is set to start drawing from it only to pass away unexpectedly.
This creates several uncertainties. Can it be passed to a spouse or a child free of IHT? Can we revert to creating a trust on death to divert the funds away from IHT?
The IHT thresholds have been frozen for some time and will now be frozen until 2030 meaning that many families are close to or over the threshold, based on the value of the family home alone, meaning that most or all of the pensions would be subject to a 40% reduction on death (after 6 April 2027).
We will see more detail emerge and consultancy with the industry over the coming days. It would be a great shame to see pension painted in such a negative light after so many years have been spent rebuilding that reputation and value of pension savings.
Other IHT considerations
Both Agricultural Property Relief (APR) and Business Property Relief (BPR) are also subject to significant reform. IHT relief will be limited to only the first £1m of value and relief above £1m will be limited to 50%.
This is as significant as the pension changes and, for some, will be interlinked with the pension changes.
The same logic will apply to anyone who owns “quoted shares ‘not listed’ on the markets of recognised stock exchanges, such as Alternative Investment Markets (AIM).”
Navigating change
We have seen significant changes in legislation before and continue to work with all of our clients on an individual basis to adapt plans and help ensure they have peace of mind. Financial planning has never been about fund selection or annual performance but about navigating the changing landscape to help client achieve their financial objectives.
Budget analysis webinar
On October 31st, we hosted a Budget Analysis webinar, analysing the Chancellor's announcements and the potential consequences for both businesses and individuals.
