The 2024 Autumn Budget, introduced by the Labour government, has brought several notable changes that could affect your personal finances. While many of the proposed reforms were anticipated, some surprises also emerged. Here’s a breakdown of the key announcements and how they might impact you:
Pensions
Inheritance Tax on Pension Death Benefits
One of the most significant changes is the introduction of inheritance tax (IHT) on most pension death benefits. However, there are some nuances:
- Spousal exemption will continue, meaning pensions inherited between spouses or civil partners will remain unaffected by IHT.
- If an individual dies before the age of 75, their pension will be included in their estate for IHT purposes, but beneficiaries will not pay income tax when accessing it.
- For those who die after 75, their pensions will be subject to both IHT and income tax at the beneficiary’s marginal rate, effectively leading to a form of double taxation.
The government has launched a consultation on this issue, and we hope that the double taxation aspect will be revisited before the changes come into effect in 2027.
State Pension Triple Lock Maintained
The triple lock guarantee on the state pension will remain in place, resulting in a 4.1% increase in the state pension for 2025-26, based on earnings growth.
No Change to Pension Commencement Lump Sum
The tax-free cash amount available when you start accessing your pension will remain unchanged. The rumours of reducing the percentage of tax-free pension cash have not materialized, so you can continue to take up to 25% of your pension pot as a tax-free lump sum.
Capital Gains Tax (CGT)
Increased CGT Rates
From the Autumn Budget, the main rate of CGT has increased:
- The rate for basic-rate taxpayers rises from 10% to 18%.
- The rate for higher-rate taxpayers increases from 20% to 24%.
However, the annual exemption for CGT remains at £3,000, with no change for second properties. For second properties, CGT will continue to be taxed at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers.
Inheritance Tax (IHT)
IHT Freeze Extended
The freeze on IHT thresholds has been extended until 2030:
- The nil-rate band remains at £325,000.
- The residence nil-rate band stays at £175,000, with a taper for estates over £2 million.
This means that qualifying estates can pass on up to £500,000 without incurring IHT, and a surviving spouse can pass on up to £1 million tax-free.
Changes to Agricultural Property Relief and Business Property Relief
From April 2026, 100% tax relief for qualifying agricultural property and business assets over £1 million will be reduced to 50%, effectively introducing an IHT rate of 20%.
School Fees
VAT on Private School Fees
Starting in January 2025, VAT will be applied to private school fees. Furthermore, from April 2025, private schools will lose business rates relief, potentially leading to higher fees for families.
National Insurance (NI) and Income Tax
NI and Income Tax Thresholds
The thresholds for National Insurance and income tax will no longer be frozen beyond 2028. This means they will rise in line with inflation from 2028 onwards. Additionally, employer National Insurance contributions will increase by 1.2%, reaching 15% from April 2025.
ISAs
ISA Contribution Limits Unchanged
There will be no changes to the annual ISA contribution limits, which will remain at £20,000 for standard ISAs, £4,000 for Lifetime ISAs, and £9,000 for Junior ISAs and Child Trust Funds, until April 2030. Additionally, the previously proposed “British ISA” will not go ahead.
Conclusion
The 2024 Autumn Budget introduces several key changes that could affect your financial planning. Pensions, inheritance tax, and capital gains tax will all see significant shifts, with implications for higher earners and individuals with large estates. However, there is still time for further consultations and refinements, particularly around pensions and death benefits.
As always, staying informed and consulting with a financial planner will ensure you are prepared for these changes and can make the most of the available opportunities.
