The 30th October Autumn Budget delivered several key announcements
- Removal of the exemption to inheritance tax of pension death benefits from 6th
April 2027. - No extension to the freeze in the income tax thresholds.
- An increase to the rates of Capital Gains Tax (CGT) from 10% and 20% to 18%
and 24% respectively. - An increase to employer’s National Insurance contributions by 1.2 percentage
points, to 15% from 6th April 2025. - A reduction in the secondary employer threshold for National Insurance
contributions to £5,000. - An increase to the CGT rate payable on gains made from the disposal of assets
qualifying for business assets disposal relief. - An extension of the freeze on the nil rate band and the residence nil rate band
to April 2030. - 100% Business relief for unquoted businesses and agricultural relief limited to
a combined £1m. - Business Relief for unlisted quoted shares (e.g. AIM listed shares) reduced to
50%.
PENSIONS
Pension funds to be subject to Inheritance Tax
From 6 April 2027 most pension funds will fall into the estate for inheritance tax (IHT) purposes. This will include funds paid out as a lump sum and those paid as beneficiary’s drawdown or an annuity. Lump sum payments into a bypass trust will also be in scope.
Scheme pensions and funds paid as charity lump sum death benefits will be exempt.
Currently most pension funds are outside of the estate as they are paid at the discretion of the pension scheme. The new rules will remove the distinction between discretionary and non-discretionary payments and the value of all benefits will fall into the estate.
The Government have issued a consultation paper explaining the changes which state that IHT will be payable on the value of the gross funds in the pension immediately before death, but before being distributed or designated to the beneficiary. The IHT charge will be paid by the scheme and the usual pre and post age 75 income tax rules on the residual funds will still apply. This means that post 75 death benefits, or funds in excess of the Lump Sum Death Benefit Allowance pre 75, will be subject to both IHT and income tax on the residual amount.
The new rules will apply to all overseas pensions schemes as well as UK pension schemes and the spousal exemption will still apply in the normal way, so any funds that pass to a spouse or civil partner will remain free of IHT on first death.
The change is due to come into effect on 6 April 2027. A technical consultation paper has been published on the implementation with a deadline for responses of 22 January 2025.
Annual Allowance
No changes were announced to the various Annual Allowances for 2025/26.
• Annual Allowance remains £60,000.
• Money Purchase Annual Allowance remains £10,000 with no carry forward.
• For the Tapered Annual Allowance, the Threshold Income limit remains £200,000, the Adjusted
Income limit remains £260,000 and the minimum allowance remains £10,000.
Lump Sum Allowance and Lump Sum and Death Benefit Allowance
• Lump Sum Allowance (LSA) remains at £268,275 – this covers tax-free cash payments during the
client’s lifetime.
• Lump Sum and Death Benefit Allowance (LSDBA) remains at £1,073,100 – this covers the totality of
lifetime tax-free cash, severe ill-health lump sums and tax-free death benefit lump sums on death
under age 75.
CAPITAL GAINS TAX
The Government announced a wide range of changes to capital gains tax (CGT):
• With effect from 30th October 2024, the basic rate CGT will increase from 10% to 18% and the higher rate will increase from
20% to 24%.
• Residential property CGT rates will remain at 18% and 24% respectively.
The main rate of CGT for trustees and personal representatives will increase from 20% to 24%.
Business asset disposal relief and Investor’s relief
• The rate of CGT payable on qualifying gains will increase from 10% to 14% from 6 April 2025 and then further increase from
14% to 18% from 6 April 2026. The cumulative limit for qualification remains at £1m.
Lifetime limit for Investors’ relief
• The lifetime limit for Investors’ relief will reduce from £10m to £1m for disposals made on or after 30 October 2024.
INHERITANCE TAX
In additional to the announcement removing the exemption to inheritance tax of pension death benefits from 6th April 2027 (covered elsewhere in this document), the Chancellor also announced that the inheritance tax nil rate band and residence nil rate band, which are currently set at £325,000 and £175,000 respectively until 5th April 2028, will stay fixed at these levels for a further two years until 5th April 2030. There is no change to the residence nil-rate band taper threshold which will remain at £2m.
Reform of agricultural property relief and business property relief
The government will introduce a new £1m allowance which will apply to the combined value of property in an estate qualifying for 100% business property relief and 100% agricultural property relief and replace the current regime under which relief is unlimited for both asset types.
Reduction in the rate of business relief for quoted shares not listed on the markets of recognised stock exchanges
The government will reduce the rate of business property relief available from 100% to 50% for quoted shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM. Those shares will not benefit from the £1m allowance mentioned above.
Non-domiciles
It was confirmed in the Autumn Budget that the current IHT regime which is based on domicile status will move to a residencebased system with effect from 6th April 2025. From this date, individuals who have been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) arises will be subject to UK IHT on their worldwide assets.
INDIVIDUAL SAVINGS ACCOUNTS
There are no changes to ISA, Junior ISA, Lifetime ISA and Child Trust Fund Allowances. The annual subscription limits will remain at £20,000 for ISAs, £4,000 for Lifetime ISAs and £9,000 for Junior ISAs and Child Trust Funds. These allowances are frozen until 5th April 2030.
UK ISA consultation
The Government has now announced it will not be proceeding with the previously proposed UK ISA due to mixed responses at the consultation stage.
STATE PENSION
• The New State Pension will be increased by 4.1% on 6th April 2025 in line with the full Triple Lock, to £221.20 per week.
• The Old State Pension increases on 6th April 2025 to £176.45 per week.
