Season’s Greetings! It would be nice, given the close proximity to Christmas and New Year, that we could write a good news piece on the recent budget. However, the Chancellor had other ideas, making it – for many reasons – one of most the ‘historical’ budgets in memory. Instead, we are left to try and unravel a lot of what was said – and not said – from a financial planning perspective.

Against a backdrop of a manifesto pledge not to increase income tax, employee national insurance, or VAT, the chancellor introduced significant changes to pensions, business and agricultural reliefs, and capital gains tax, all in an effort to ‘fix the foundations and deliver change’ for the UK economy.

Pensions and Inheritance Tax

One of the most noteworthy, and debated changes, involved pensions – again. From April 2027, unused pension funds and lump sum death benefits from registered pension schemes will be, depending on personal circumstances, subject to inheritance tax. Currently, pensions, if the right steps are taken, are exempt from IHT, making them an effective tool for wealth transfer. From 2027, pensions will form part of the taxable estate, with the exact mechanism of how IHT liabilities will be paid, still under consultation. It is expected, however, pension trustees will (likely) handle these payments, proportioned across one’s various pension holdings.

Such a significant change will require a slight ‘reprogramming’ of how we view pensions when looking at one’s wider financial/retirement planning, with it creating added complexity and cost for beneficiaries, particularly when they inherit pensions from loved ones. Just how much of a change it creates, will depend on the finer detail following on from the consultation.

Business and Agricultural Relief Adjustments

Business Property Relief (BPR) and Agricultural Property Relief (APR), which currently offer up to 100% IHT relief on qualifying assets, will face notable restrictions starting from April 2026.

Capping Full Relief: The 100% relief will now only apply to the first £1 million of combined qualifying business or agricultural property. Assets above this threshold, will qualify for 50% relief, resulting in increased IHT liabilities for larger estates. Importantly, the £1 million of relief is not transferrable between spouses, as with other reliefs, so if it is not used on the first death, it is lost.

Inheritance Tax Threshold Freeze

The IHT nil-rate band (£325,000), and residence nil-rate band (£175,000), will remain frozen until April 2030. This extended freeze, in effect since 2009, increases the number of estates subject to IHT, largely due to rising property values. This means families, especially those inheriting high-value homes, will need to explore the different planning opportunities available, if reducing the impact of Inheritance Tax is important.

Capital Gains Tax

From 30 October 2024, the Capital Gains Tax (CGT) rates increased, with basic rate taxpayers now paying 18% (up from 10%), and higher rate taxpayers paying 24% (up from 20%). Rates for residential property sales remain at 18% for basic rate taxpayers and 28% for higher rate taxpayers.

CGT changes also affect Business Asset Disposal Relief (BADR) and Investors’ Relief (IR), with rates rising from 10%, to 14% in April 2025, before rising further, to 18% in April 2026. The lifetime limit for IR was reduced to £1 million (from £10m).

Overall, these changes aim to increase government revenue, but may have the opposite effect to what is intended, potentially changing investor behaviour, and asset sale decisions. The ‘laffer curve’ springs to mind, where increasing the tax rate, does not always result in tax revenue increasing.

Looking Ahead

Following these announcements, we would caution against making knee-jerk decisions that can have vast and long term implications. However, in what feels like a paradigm shift towards the concept of ‘rentier capitalism’, moving forward, I’d argue that the value of holistic financial planning, has never been more important.

These changes demand proactive estate planning. Wealthier families, business owners, and farmers, should reassess their succession strategies to minimize tax exposure. For example, making lifetime gifts, or restructuring asset holdings, may help reduce liabilities. ‘Big picture’ professional financial advice, with collaboration between Financial Planners and Accountants, will be essential in navigating these reforms effectively​.

The October 2024 UK budget reshapes key financial planning strategies, particularly concerning pensions, agricultural and business reliefs, and IHT. The government will argue that these measures will address systemic inequities while ensuring sustainable public finances. But, the only certainty, is that they introduce greater complexities, requiring individuals/families/business owners to carefully plan for their futures if they want to safeguard their wealth and estates.