The Autumn Statement, 2024

In what was the most hotly anticipated budget statement for a generation, Rachel Reeves announced a number of measures that will greatly impact on the financial plans of business and individuals alike.

Pensions

Although there were no changes to pension annual allowances, tax relief or tax-free lump sums, those who intended to use pensions as a tax-efficient way of passing on wealth on death will be disappointed with the announcement that from 6 April 2027, inherited pension death benefits will be subject to inheritance tax (IHT). This will apply in addition to the pre-existing rules under the Lump Sum and Death Benefit Allowance (LSDBA), whereby most individuals can draw tax-free lump sums and leave pension death benefits up to a combined £1,073,100. Death benefits paid in excess of the LSDBA are subject to income tax at the recipient’s marginal rate. This could lead to effective rates of tax in excess of 60% on inherited pensions, once the tax on death of the donor and income tax on the recipient drawing income are taken into account.

The chancellor restated her intent to support savers and encourage individuals to save for retirement, but these changes could act as a major disincentive, potentially exacerbating the already huge problem that lack of adequate retirement provision presents to society. Many are now calling for wholesale reform to our pensions system.

In more encouraging news for retired individuals, The Government honoured its pledge to “protect” the triple lock on State Pensions by announcing that the Basic State Pension, new State Pension and Pension Credit standard minimum guarantee will be uprated in April 2025 by 4.1%, in line with earnings growth in September 2024.

Inheritance Tax

In a further blow to those aiming to mitigate IHT liabilities, The Chancellor announced that from 6 April 2026, an individual will be able to leave combined business and agricultural assets to their chosen beneficiaries of £1million before incurring IHT, with any excess being taxed at 20%. Although the Government claims that the majority of estates will be unaffected by this change, the impact on those estates that affected is likely to be significant and, alongside the changes to Capital Gains Tax (CGT), could be viewed as a deterrent to those aiming to establish and grow businesses in the UK.

Capital Gains Tax

As expected, Rachel Reeves announced an increase in CGT, from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher-rate taxpayers.  Many had expected a more significant narrowing of the gap between tax on income and investment gains, but in conjunction with the aforementioned, this will feel like a raid on accumulated wealth. Unlike many of the other tax changes announced, this change took effect immediately, which may have caught out many investors.

Summary

Although UK markets did fall in the immediate aftermath the Budget, it does not appear that markets will experience significant turmoil. Regardless of this, I think it is fair to say that this is a difficult Budget for investors and business owners. Many will be faced with having to significantly reassess their financial plans, and in the face of such radical changes, seeking expert advice will be more important than ever.