October 31, 2024
Yesterday’s Budget announcement, widely touted as Labour’s ‘Big Budget’, included some better than expected, and some not so good news for wealth builders, pensioners and those looking towards their legacy.
If you’re wondering what this might mean for your financial plans, read our brief overview of the key take-outs on which we are already getting questions.
As ever, the first thing we at Talis IFA would say to you is – don’t panic. If you believe you will be affected, talk to your IFA before making any changes to your financial plans.
Although some of the new rules apply with immediate effect, the impact of others will be longer-term. It’s important to remember that the impact on you depends on your personal circumstances, so if you want to understand in detail, or are considering making adjustments to your plans, book a review with your Talis IFA before making any decisions.
Here’s what we’ve been asked so far:
What’s changed?
Other than on residential property, which remains unchanged, CGT has increased with immediate effect to 18% for basic rate tax payers and 24% for higher and additional rate tax payers.
What it does mean is that investment options with tax exemptions could be more tax efficient.
Your first action should be a comprehensive review of your investment strategy with your IFA. We will need to look at the structure of any investments exposed to CGT and consider alternatives – pensions and ISAs for example (if you are not already making full use of your annual allowances), which remain outside CGT, and pick the most appropriate options for you going forwards.
What’s changed?
This is an inheritance tax (IHT) impact, and may apply to you if the value of your estate, including business and agricultural property, exceeds the IHT threshold.
Previously, properties like small family farms – including land used for crops or rearing animals, as well as farm buildings, cottages and houses – have been handed down through the generations without attracting IHT. Similarly, shares in small companies and family-run business could be inherited at a zero tax rate.
From April 2026, the tax-exempt value of these assets will be capped at £1m, meaning that some estates above that value will be taxed at an effective rate of 20%.
If this is likely to affect you and your beneficiaries, talk to your IFA. As the changes don’t come into force until 2026, we have some time to plan. Some IHT may be unavoidable, but we can look at possibilities for mitigating it, and will also need to ensure that there are sufficient sources of other capital to pay the bill, (for example a life insurance policy).
There are also schemes we advise on which take advantage of business relief in certain types of business that will be affected by this. They will still be tax efficient but we will need to look at specifics to understand how tax efficient they continue to be.
What’s changed?
The inheritance tax (IHT) threshold freeze of £325k (or £500k if it includes a residence left to a direct descendant) has been extended to 2030, meaning that more estates will be drawn into the IHT regime.
The major change is that inherited pensions will also be liable for IHT from April 2027.
This is an area which could make significant changes to the advice we offer you, but again, it depends on your personal circumstances, and the life stage you are currently at.
But again, it’s important not to panic, and not to make any decisions without a detailed review you’re your IFA.
The first thing to recognise is that the change is not due to come into effect until 2027, and we don’t yet know exactly what shape it will take. There will be a consultation process, so it’s likely to be at least a year before we know exactly how it will work.
What hasn’t changed is the spousal allowance. So you will still be able to leave an active pension or death benefits to your spouse without it incurring IHT liabilities.
However, if you have been planning to leave a pension fund to your children or grandchildren, and the value of your estate exceeds the IHT threshold, that money will attract IHT.
As the rules stand at the moment, that money could also be subject to dual taxation. For example, if your estate exceeds the tax-free allowance, and you leave a pension fund worth £100k, your estate would pay £40k in IHT. Your beneficiaries might also have to pay income tax on drawing that money.
This, however, is also subject to the consultation process before it comes into force.
Again, your first priority should be to talk to your Talis IFA. We will look in detail at your personal circumstances and financial objectives. If you are already retired, we will consider with you whether you are still drawing your income in the most tax-efficient way. What you need to do may change, but the important thing is not to panic, and not to make any changes until we fully understand the implications.
What’s changed?
There is an immediate stamp duty increase on purchases of additional properties, buy-to-let, or second home.
The stamp duty surcharge, currently charged at 3% for those buying additional properties, will rise to 5%.
Whether investing in buy-to-let property remains an appropriate idea for you depends, once again, on your personal circumstances and financial goals.
If you’ve been talking to a Talis IFA about your plans, you should already have a detailed cash-flow forecast, so your first step will be to review it with them, taking into account the impact of the additional 2% on the cost of purchase, (along with income tax on revenue and CGT on profit when you sell – which haven’t changed).
(It is also worth noting that the current stamp duty relief for first-time buyers and home movers, which was introduced in September 2022, will end as planned on 31 March 2025. From 1 April, home movers will pay stamp duty on purchases over £125,000, rather than the current £250,000. The current stamp duty threshold for first-time buyers will drop from £425,000 to the previous rate of £300,000.)
Helping you to achieve your objectives is the single most critical part of what we do as IFAs.
The most important thing is to have a clear understanding of what you are looking to achieve. Being in a position where you know what your end goals are, enables us to look with you to see how the changes are likely to impact your plan.
At Talis IFA, we encourage a long-term view of financial planning, and the changes announced in this Budget are no different. If you are concerned, book a review with your IFA, who will look with you at the details, explain in plain English what the implications are, along with your options, and help you to make an informed decision about what to do next.
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