The Chancellor’s Autumn Budget 2024: Impact on Estate Planning
The Autumn Budget 2024, delivered by Chancellor Rachel Reeves, has introduced significant tax changes aimed at addressing fiscal shortfalls while pledging increased funding in crucial sectors. With the largest tax-raising budget since 1993, it has implications for estate planning that will affect individuals with assets and estates in the UK. Below, we delve into the measures directly impacting estate planning, including changes to inheritance tax (IHT), capital gains tax (CGT), and pensions. 1. Inheritance Tax (IHT) Changes and Freezes Frozen IHT Thresholds Until 2030One of the most consequential announcements for estate planners is the freeze on IHT thresholds, now extended until 2030. The nil-rate band remains at £325,000, and the residence nil-rate band is also frozen at £175,000. With these thresholds unchanged, as property values and assets appreciate, more estates will likely exceed these limits, bringing more families into the IHT net. Inheritance Tax on PensionsFor the first time, inherited pensions will be subject to IHT from April 2027. This new rule means that pensions passed down upon the death of the original owner will be considered part of the deceased’s estate for tax purposes, potentially increasing the IHT burden. Estate planners should consider strategies to mitigate this impact, including diversifying assets or exploring trusts. Changes to IHT ReliefsThe budget also outlined plans to make business property relief (BPR) and agricultural business relief (ABR) less generous. While the full details are yet to be disclosed, any tightening of these reliefs will reduce their effectiveness as estate planning tools, particularly for individuals with substantial business or agricultural assets. Those planning to rely on these reliefs should stay informed on how future adjustments could impact their estate’s tax exposure. 2. Capital Gains Tax (CGT) Increases CGT Rate ChangesThe Budget announced increases to CGT rates, which are effective immediately from 30 October 2024. The lower CGT rate rises from 10% to 18%, while the higher rate increases from 20% to 24%. These rates align with those on residential property gains, which remain unchanged. These adjustments mean that individuals disposing of non-residential assets will face higher CGT liabilities, underscoring the importance of careful asset management and timing of disposals. Impact on Business Asset Disposal Relief (BADR)The rate for Business Asset Disposal Relief, a vital relief for business owners planning for succession or retirement, will also increase to 14% starting 6 April 2025. This change will lessen the tax efficiency of transferring business assets, particularly for small business owners and entrepreneurs who previously benefitted from the lower 10% rate. Those considering business disposals should evaluate the timing and structure of these transactions to minimise CGT impact. 3. Pension Planning Opportunities Retention of Pension Tax ReliefWhile there was speculation that pension tax relief could be curtailed, the Chancellor opted to retain the current framework, allowing individuals to continue benefiting from tax-efficient pension contributions. This decision is positive for estate planners, as it preserves the value of pensions as a tax-effective way to build wealth over a lifetime. It may be wise for estate planners to encourage clients to make the most of their pension allowances, given the pending IHT changes on inherited pensions. Pension Credit and State Pension IncreasesBoth pension credit and the state pension will increase by 4.1% in 2025, a move aligned with the government’s commitment to the triple lock on pensions. This increase may enhance retirement planning outcomes, as clients will have slightly more income security in retirement. 4. Business and Property Implications for Estate Planning Impact of Corporate and Business Taxes on Estate ValuationsWith the corporate tax rate held at 25% and business rates relief extended for certain sectors, the economic environment for businesses remains challenging. This higher corporate tax rate and increased business rates could affect the value of businesses and commercial properties within estates. Those with significant business interests may wish to review their estate plans in light of these changes, particularly to mitigate any impact on estate value for heirs. Stamp Duty Land Tax (SDLT) ChangesThe Autumn Budget reintroduced higher SDLT rates for additional property purchases, with a surcharge on second homes increasing to 5% from 31 October 2024. This change could deter some from expanding property portfolios, which may influence long-term estate plans where property is a central asset. Estate planners may look to explore alternative asset classes or strategies to minimise SDLT liabilities. Planning Considerations in Light of the 2024 Budget For those with significant estates, the Budget highlights a few key actions to consider: The Chancellor’s Autumn Budget 2024 introduces several important changes for estate planning, with an emphasis on capturing more revenue from wealthier estates. Careful planning and timely decision-making will be essential for individuals to mitigate these impacts while navigating this new fiscal landscape.