Autumn Budget 2024

How the Chancellor's announcements could affect you and your clients

Mike Ambery, Director of Retirement & Savings, recaps the Autumn Budget announcements and shares what he believes could impact you and your clients. Watch his summary below.

In-depth summary

Rachel Reeves presented the Autumn Budget on 30 October 2024, and we’ve sifted through the measures to pick out these key messages for your clients:

• There’s no change to the amount that people can take tax-free from their pension – the lump sum allowance
• Pension death benefits may be subject to inheritance tax from April 2027
• Employers’ National Insurance contributions are increasing to 15% from April 2025
• Capital gains tax rates equalised against the property rates

Here’s our summary of the wider points from the Autumn Budget.

Pensions

Lump sum allowance

Despite speculation that the lump sum allowance - and therefore the amount that could be taken tax-free - could be significantly reduced, it’s a welcome relief to see that there are no changes to the lump sum allowance or the lump sum and death benefit allowance.

State Pension

The State Pension is set to rise by 4.1% from April 2025, as the triple lock is retained. The full new State Pension will increase from £221.20 per week to £230.25.

For those who reached State Pension age before 6 April 2016, the basic State Pension will increase from £169.50 per week to £176.45.

Pension death benefits

In recent years, pension schemes have been increasingly used as a tax planning tool to transfer wealth without an inheritance tax charge, rather than for their intended purpose of funding retirement. The Chancellor announced a consultation to bring unused pensions and death benefits into scope of inheritance tax (IHT) from April 2027.

The consultation is looking to remove:

• The incentive to use pensions as a tax planning vehicle for wealth transfer after death
• The distinction between how discretionary and non-discretionary death benefits will be taxed

Currently, unclaimed pension benefits payable at the trustee's discretion are not taken into account when determining the value of an individual’s estate.

From 2027, unclaimed pension benefits will be included in the value of an estate, and IHT will need to be deducted if the deceased’s estate exceeds their IHT threshold.

In addition, in certain circumstances the Pension Scheme Administrator, currently and from 2027, may need to deduct Income Tax at the beneficiaries’ marginal rate when payments are made. The amount of tax payable could vary depending on how a beneficiary chooses to take the benefits.

Important areas to review include their total assets that will be valued for IHT purposes, and whether clients should maximise the tax-free cash they take during their life. Wider planning may be needed to manage and gift other assets, and for the application of spousal exemptions.

National insurance

The thresholds and rates of employee national insurance contributions are not increasing. The freeze on the threshold isn’t planned to be extended beyond the 2028/29 tax year. However, the Chancellor has raised national insurance contributions for employers by 1.2%, taking the rate to 15% from April 2025.

The salary threshold at which companies pay the tax has also been lowered, from £9,100 a year to £5,000 a year.

While this means employers’ national insurance costs will increase, this change increases the value of salary sacrifice schemes for employers. Such schemes can potentially offset some of those increased costs if employees agree to reduce their salary for increased pension contributions.

Pension transfers overseas

With the aim of reducing opportunities for UK residents to receive double tax-free allowances, from 30 October 2024, the government are removing the tax exemption that applies to the Overseas Transfer Charge for transfers to Qualifying Recognised Overseas Pension Schemes (QROPS) in the European Economic Area or Gibraltar.

Other existing exclusions to the overseas transfer charge remain valid, such as transfers where the member is resident in the same country as the QROPS.

The government will bring in line the conditions of Overseas Pension Schemes (OPS) and Recognised Overseas Pension Schemes (ROPS) established in the EEA, with OPS and ROPS established in the rest of the world from 6 April 2025.

Capital Gains Tax

The following increases to the main capital gains tax (CGT) rates were announced, effective immediately:

• Lower CGT rate increases from 10% to 18%
• Higher CGT rate increases from 20% to 24%

However, the Chancellor highlighted that these new rates remain internationally competitive, lower than comparable EU countries.

There will also be a two-stage phased increase to the CGT rates for Business Asset Disposal Relief and Investors’ Relief, rising to 14% from 6 April 2025, and then to 18% from 6 April 2026.

In addition, the lifetime limit for Investors’ Relief will be reduced to £1 million for all qualifying disposals made on, or after, 30 October 2024.

From April 2026, Carried Interest will no longer be subject to CGT and instead become subject to Income Tax.

Reforming the taxation of the non-UK domiciled individuals

Changes to the taxation of non-UK domiciled individuals was previously announced by the Conservative government in their 2024 Spring Budget. The Chancellor confirmed today that they will proceed with the changes to the non-UK domicile tax regime from the 6 April 2025.

The current rules for the taxation of non-UK domiciled individuals will end.

The new proposals will introduce a 4-year Foreign Income and Gains (FIG) regime. Individuals who elect to use the new regime won’t pay tax on their FIG within the first 4 years of the tax residence in the UK - provided they haven’t been a UK resident in the tax years immediately before their arrival. Individuals who are UK-resident and don’t qualify for the 4-year FIG regime will be taxed on an arising basis of taxation on worldwide income and gains.

There’s also a new 3-year Temporary Repatriation Facility (TRF). This is aimed at individuals who have untaxed and unremitted FIG that arises before 6 April 2025. The amounts designated can be remitted to the UK in any tax year, although it doesn’t have to be brought back to the UK in the tax year in which the individual pays the charge.

It’s also been confirmed that the concept of domicile for inheritance purposes will be replaced with a new residence-based system. An individual will be in scope for UK inheritance tax where they’ve been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the individual dies. This period is reduced where they have been resident in the UK for longer than 10 years.

The rules regarding excluded property trusts will also be impacted by these changes.

These new rules provide some clarity around the new system of taxation for non-UK domiciled individuals. The changes announced are very detailed, and may have wider implications for your clients when determining whether the changes will have an impact on their current and future tax planning considerations.