In this week’s Autumn Budget, the government introduced roughly £40 billion in tax increases aimed at addressing a £20 billion “black hole” in public finances. Although the overall tax rises were somewhat larger than I expected and that which was commented in the media, the chief revenue generators focus on Employer National Insurance Contributions, adjustments to the non-domicile regime, and increases in Capital Gains Tax (CGT) rates. This means my typical client is less impacted than the derth of speculation would suggest, and this reinforces my view that extensive media speculation around inheritance tax (IHT), pensions lump sums, and wealth taxes was overstated.
Here are what I think are the key changes and how they might affect financial planning in the years ahead.
Income Tax Adjustments
Effective Date: April 2028
Details: Personal allowances and other tax thresholds will adjust with inflation starting in 2028. This goes some way to address the inflationary effects of “fiscal drag” through modest increases, but is relatively modest in its scope.
Planning Consideration: As thresholds shift, regular plan reviews will help ensure tax efficiency. This is particularly relevant in retirement, where income flexibility may provide opportunities for tax planning.
Capital Gains Tax (CGT) Rate Increases
Effective Date: Immediate
Details: The CGT rate increased from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers on disposals made from 30 October 2024. Rates on residential property remain unchanged. Business Asset Disposal Relief (BADR) still offers a reduced 10% CGT rate for qualifying business sales up to £1 million, but phased rate increases will apply from April 2025.
Impact on Investments: With CGT rates now higher, careful planning may be beneficial when selling investments. If you are considering a disposal, please consult us first to discuss strategies that could help minimise your tax impact.
Inheritance Tax (IHT) and Pensions
Effective Dates:
IHT Allowances Freeze – Until 2030
Pensions in IHT Scope – April 2027
Business and Agricultural Relief – April 2026
Details: From 2027, unspent pension funds passed as inheritance will be included in the estate for IHT, impacting both Defined Contribution (DC) and Defined Benefit (DB) schemes. This adjustment may be unsurprising following the abolition of the Lifetime Allowance, as pensions have received very favourable tax treatment in life. Additionally, from 2026, relief for business and agricultural assets will apply at 100% for the first £1 million, with 50% relief on values above this. AIM shares—often held for IHT relief—will now face a 20% IHT rate, which may affect their role in estate planning.
Planning Ahead: With these changes, reviewing estate plans may help reduce potential tax impacts. We’re here to explore options with you to ensure beneficiaries can benefit from tax-efficient strategies.
Employer National Insurance Contributions (NICs)
Effective Date: April 2025
Details: Employer NICs are set to increase by 1.2 percentage points to 15%, with the secondary threshold lowering from £9,100 to £5,000. However, the Employment Allowance will double to £10,500, potentially exempting many small businesses from paying any NIC. For businesses, pension contributions remain exempt, making salary sacrifice an increasingly attractive option.
What to Keep in Mind: As NIC rises, employees, including employee/directors, may find salary sacrifice or similar schemes beneficial. This can help manage payroll costs, making it an effective approach to reduce NIC liabilities.
Other Notable Changes
Stamp Duty Land Tax (SDLT): From 31 October 2024, the SDLT rate for second homes and company purchases increased from 3% to 5%, and single-rate SDLT for companies on properties over £500,000 has risen from 15% to 17%. These changes further underscore the tax downsides of property as an asset class, especially for corporate buyers.
Non-Dom Regime: Effective from 6 April 2025, the non-dom tax regime will be abolished and replaced by a residency-based system. This will significantly change the tax landscape for internationally mobile individuals.
Final Thoughts
Overall, this Budget focuses on raising revenue from high earners and businesses, with limited impact on the typical retired client. While the anticipated IHT and pension lump sum taxes did not materialise as feared, some important changes, particularly around IHT for pensions, warrant further planning. Please reach out if you’d like to discuss how these changes may impact your financial plans.
Disclaimer: This piece is for informational purposes only, and is not meant to be exhaustive – it is only covering the subjects we thought most personal to our typical “at-retirement” client. It certainly should not constitute personal advice, if any of the topics are of interest please get in touch and contact us before making any financial decisions.
