Well, it’s finally happened. The much-mentioned Budget has been unveiled by the chancellor in an epic speech after leaks, hints, early announcements and promises of ‘tough/difficult decisions”. So, does it live up to its initial downbeat hype?
Well, yes and no. The numbers are absolutely massive, and the ramifications will last for years, but what does it mean to you, my valued Panthera clients? In some of the lesser headline announcements, quite a lot, as it turns out. And as usual, it depends on if you are one of the “working people” or not.
Here are the announcements that could affect both Panthers Estate Planning clients and Panthera LIFE retirees.
Capital Gains Tax (CGT)
This is a tax on the profit you make when you sell something apart from your main residence. The lower rate of CGT will be raised from 10% to 18%, while the higher rate will rise from 20% to 24%. What’s more, it clicked into action on Budget day. If you have buy-to-let properties, the rates will remain at 18% and 24%.
This is not good news if you were considering selling off assets such as investments or second properties to pay for retirement or care. What’s more, the tax-free CGT allowance is now only £3000 (cut from £6k last year). If you’re planning to invest in property at all, then Stamp Duty surcharge on second homes is going up from 3% to 5%.
Inheritance Tax (IHT)
There has been a freeze on the threshold for inheritance tax in place since 2009, (yes, 15 years), and this remains unchanged. The individual allowance is still £325,000, or £500,000 for residences left in your Will to direct decedents, and £1m for married couples who can combine their allowances.
In effect, this means that once again, more estates will be liable for IHT, as the threshold has not risen in line with inflation. (If it had, the threshold would now be a far more realistic £503,879.) Around me, the average house price is currently £359,149 and rising. Head down the road to Chichester and the average price for a detached house is £694,689.
Pensions and IHT
From April 2027, pensions will be brought into the estate for potential IHT. If you spotted this, well done, it was buried deep, and most media summaries didn’t even mention it.
However, it could be a BIG deal for a lot of people with private pensions. As the .gov website says:
“From 6 April 2027 most unused pension funds and death benefits will be included within the value of a person’s estate for Inheritance Tax purposes and pension scheme administrators will become liable for reporting and paying any Inheritance Tax due on pensions to HMRC.”
The details are a bit sketchy but as I understand it, the pension referred to would be the fund remaining, not an inherited widow’s pension.
At the moment a pension fund can remain outside the estate, passing to a spouse and then children and still remain as a pension. So it will be interesting to see how they plan to apply tax to that, and if it stops being a pension after the death of the individual. That’s why the detail is important. At least there is over 2 years until it comes in so we should have more info by then.
Retirement planning and pensions
The issue of pensions being included for IHT is huge as this has always been the asset to leave into retirement and live off the income or other assets. However, many with larger pension pots may wish to adjust their retirement planning so they potentially spend more and not keep a pension fund for a legacy that could be taxed at 40%. The same applies to estate planning, as with the frozen threshold, more and more estates will have a liability.
As one director at Standard Life quoted in the FT Advisor said:
“This represents a fundamental shift to how wealthier individuals think about accessing their money in retirement. At present it makes more sense to access Isas and other forms of saving before touching pensions. In time we’re likely to see more pensions, accessed earlier to prevent them from becoming part of people’s IHT bill at a later date.”
The family business owner
It’s been a tough budget for employers, with rises in the minimum wage, and a nasty double-whammy on National Insurance (NI) with the rate rising by 1.2%, and the threshold for payment falling from £9,200 to just £5,000. If you own a family business, it’s worth checking that the family want to inherit it….
Grandparents who contribute to their grandchildren’s education
VAT will be brought in on private school fees in January 2025. This is a massive concern for net high worth individuals as most private schools have said they will pass on that 20% increase in full, including Eton. Grandparents may want to help out with education costs now rather than leave something in their Will/s for grandchildren, if the parents can’t afford to keep them in private education otherwise.
The NHS
The spending allocated to the NHS is eye-watering, a cool £22.6bn increase in the day-to-day health budget, and £3.1bn increase in the capital budget. Note, increase. I couldn’t quite believe it when I did the sums and realised that given the current UK population of 68million, that equates to £332million for every person! Can I have mine now please and I’ll buy private health insurance…
And in other news…
There will be a cut in draught alcohol duty of 1.7%, which should equate to a penny off a pint in the pub. However, pubs will see their business rates relief cut to 45% from 75%, and the minimum wage is going up. So your local pub needs your support more than ever.
If you own or lease a private jet, it’s not good news, I am afraid. An extra 50% air passenger duty will apply to private jets, equating to up to £450 per passenger for a flight. That one made me nearly choke on my caviar and champers, darling.
There is no change in fuel duty. So, get out there in the caravan!
What does this mean right now?
You should prioritise planning your estate to be as efficient as possible while you are alive to enjoy it. How to pass a legacy to your loved ones rather than the tax man remains a core focus of my current and future client conversations.
Some of the changes will hit you now, and some you will have time to plan for. If you think you have been or will be impacted by any of the changes, please contact me.
I will keep you posted when more details come through that may impact you.
In the meantime, if you require help with any aspect of retirement and estate planning just contact me.
