Yesterday saw the Chancellor Rachel Reeves very first Budget. With an unusually long gap between election day and budget day the days were filled with rumours, speculation and quite possibly hysteria of what was going to be announced and the rights and wrongs of that.
I have had lot of conversations with clients regarding the possible impacts of some of the decisions the Chancellor may make to ‘balance the books’. There has been lots of speculation and nervous anticipation regarding this Budget. Much more than any other in recent memory.
Following a long Conservative run in Government pf 14 years this is the first incoming Labour Budget in 27 years since Gordon Brown delivered his in 1997. For this reason, the anticipation for the details and the decisions taken in this Budget to be the most far ranging and harsh for certain sections of the population.
Well now the wait is over. The Budget has been delivered.
WHAT DIDN’T HAPPEN YESTERDAY?
There has been much speculation about changes to Pensions, ISAs and Inheritance Tax. Tax Free Cash limits were mooted for pensions. This did not materialise. Which is great news and gives certainty for people when planning. Changes to ISA (and Junior ISA) limits were also discussed as being introduced, again no changes were made, which again is great news. Although the British ISA that was put forward by the last government has been cancelled. In generic terms there were also no changes to Inheritance Tax limits and thresholds and percentages which again is great and allows people to plan.
There was though one slight change here regarding inherited pension funds which I will touch on below.
The abolished Lifetime Allowance was also not re-introduced as well. All of these factors allow people to plan, which is obviously a fundamental part of what Oyster do for you, our clients.
Lots of clients had contacted me to discuss taking tax free cash earlier as a pre-emptive action in case this was going to be removed but barely anyone did take action, and everyone can now breath a sigh of relief.
WHAT WERE THE KEY ANNOUNCEMENTS FROM A FINANCIAL PLANNING PERSPECTIVE
Now we can move onto some facts (or some facts as we know them as they might well change before they become effective) – what did she say and what does it mean for you?
As usual there were many things in the budget, spending commitments, welfare arrangements and allowances and reliefs which are more the preserve of the client's accountant as opposed to their financial planner.
(We will issue more detailed messages on specific areas once all of the small details have been revealed and have sunken in and been properly understood).
In no particular order:
Pension Death Benefits becoming part of someone’s estate for IHT purposes
What was announced?
It was announced that unspent pensions would be brought into the Inheritance Tax (IHT) regime from April 2027, to make the tax system fairer.
What does it mean?
Many people use their pensions as intergenerational wealth transfer vehicles. So, plans for passing on wealth will need to be reassessed.
However, there will no doubt be a great degree of detail needed from this consultation, with the potential for changes to be made.
But as stated earlier pensions remain a vital part of retirement planning. Passing on between spouse’s though as far as we can currently see is unaffected it’s just the next line of dependants after both spouses/civil partners pass on that’s where IHT potentially becomes an issue. Once more is known we will share this with you.
Capital Gains Tax (CGT) - Rate changes
What was announced?
The main rates of CGT are currently charged at a lower rate of 10% and a higher rate of 20%, and these will be increased to 18% and 24% respectively from 30 October 2024.
What does it mean?
There was a lot of discussion before the budget about the possibility of an increase to CGT rates. With the Annual Exempt Amount already having been reduced from £12,300 in 2022/23 to £3,000 in the current tax year, an increase in rates will not be welcome for those holding assets subject to CGT.
Capital Gains Tax applies to certain assets including second properties (or a higher number) including Buy To Let, Shares not wrapped in an ISA and Unit Trusts. You only pay tax on the gain over the £3,000 annual limit.
One good outcome on the CGT front is that (under current and proposed rules) there is still no CGT payable on death. It was rumoured before the budget that the CGT uplift on death would be removed but no changes on this were announced.
Income Tax and National Insurance
What was announced?
The government will not extend the freeze to income tax and National Insurance contributions thresholds. From April 2028, these personal tax thresholds will be uprated in line with inflation.
What does it mean?
The fiscal drag will unfortunately continue until April 2028 and result in more people paying tax that may not currently do so and resulting in others falling into higher rates of tax.
IHT thresholds
What was announced?
In Autumn Statement 2022 it was announced that the existing IHT thresholds were to be maintained until 5 April 2028. This kept the NRB at £325,000, the RNRB at £175,000 and the RNRB taper starting at £2m. The Chancellor announced that the IHT thresholds are to be further maintained at current levels for tax years 2028/29 and 2029/30
What does it mean?
The £325,000 NRB is available to all individuals and can be set against all asset types on their death. To allow individuals to make lifetime chargeable transfers up to £325,000 within a 7-year period without an IHT liability.
Basically, other than the Pension issue detailed above there are no changes other than the £325,000 NRB will be frozen for a further two years until 2030.
WHERE IS THE MOST PAIN GOING TO BE FELT TO COVER THE £40 BILLION NEEDED?
The lions share of the tax raises are going to be met by increasing Employers National Insurance (Class 1) by 1.2%, this is expected to create £25 Billion worth of additional tax revenue. This will hurt businesses especially with inflation busting Minimum Wage increases as well. A double whammy for businesses. It remains to be seen if this will aid or hinder the growth the Chancellor is hoping for.
SUMMARY – WHAT DOES OYSTER THINK?
Considering the wild speculation in the press (there’s a surprise) apart from the Employers NI increases and the inherited non-spousal Pensions forming part of someone’s estate for IHT purposes we feel the Budget was very good for you our clients and being able to plan with some certainty.
One good thing to come from a new government coming in is that they have kind of set their stall out now for the next 5 years. I feel if they were going to make bigger changes to pensions, tax free cash etc and IHT they would have done it yesterday.
Bigger picture as I have said to a few of you is that people’s financial plans will look a little less healthy over their lifetimes, just a little and if they take a little of everyone and that helps to fund the NHS and run the country then that isn’t so bad.
Please get in touch with any questions, always happy to help and chat through any issues or concerns.
enquiries@oysterfinancialplanning.co.uk
023 80848410
Please also do look out for additional emails when more detail is known on some of the changes announced yesterday.
Thanks as always
Michael, Donna and Lisa.
