How The 2024 Budget Could Affect Your Estate Planning: What You Need to Know
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The recent UK budget introduced measures that may impact your estate planning, particularly regarding inheritance tax (IHT), Capital Gains Tax (CGT) and pension transfers.
These changes could influence how you manage your estate, make tax-efficient transfers to beneficiaries and make the most of available reliefs and exemptions.
Nazmin Sultan-Khan, a Solicitor at A L Law Associates looks into some of the budget changes which could affect your estate planning and IHT position.
Nazmin Sultan-Khan, a Solicitor at A L Law Associates looks into some of the budget changes which could affect your estate planning and IHT position.
Inheritance Tax Bands Frozen: What It Means for You
The Government announced a continued freeze on Inheritance Tax (IHT) thresholds, maintaining the nil-rate band at £325,000 and the Residential Nil Rate band at £175,000. These thresholds will continue to be fixed until at least 2028, meaning any growth in property or asset values over this period could lead to more estates falling into the taxable range.
With inflation and rising property values, many families may face higher tax bills upon inheriting estates. As a result, proactive estate planning has become more important than ever. Freezing these bands essentially increases the tax burden over time as more estates may exceed the threshold without any adjustment for inflation.
Tax Changes on Transferable Pension Assets
The new tax rules were introduced affecting the transfer of pension assets upon death. Previously, pension assets could often be passed to beneficiaries tax-free, especially if the pension holder passed away before the age of 75. However, under the updated guidelines, more pension transfers will be subject to income tax regardless the age of the deceased.From April 2027 any unused pension funds and death benefits will be subject to IHT. The changes aim to increase tax revenue from larger estates, potentially impacting many families who had planned to leave pensions as an inheritance without tax consequences. The new rules mean that the beneficiaries may now need to pay income tax on inherited pensions, which could reduce the total amount they receive. Given these shifts, seeking guidance on tax-efficient planning for retirement and inheritance is essential to optimise pension and estate strategies under the new framework as it is likely to bring many more estates above the threshold.
Increase in Capital Gains Tax on Shares and Other Assets
The Chancellor confirmed that the CGT rate for basic rate taxpayers will rise from 10% to 18%, while higher rate taxpayers will see their rate increase from 20% to 24%. They announced an increase in capital gains tax on shares, property and other investment assets and the change is expected to impact a range of investors.The increased CGT rates mean that individuals will face higher tax burden on the profits from the sale of assets, including stocks and real estate.
The new rates took effect immediately, aligning with the CGT rates applied to the residential property sales.
The CGT allowance remains set at £3,000 per person, offering only limited relief against the increased rates.
Non-Domiciled Tax Regime
The government confirmed that the current remittance basis of taxation for non-doms will be abolished from 6 April 2025. In its place, a new four-year foreign income and gains (FIG) regime will be introduced for individuals who become UK tax residents after being non-resident for at least 10 consecutive tax years. This arrangement will significantly impact wealthy residents with international connections.
What Does The Future Look Like?
The Office for Budget Responsibility has raised an important question: Will these new restrictions prompt individuals to transfer wealth to younger generations earlier? Although this could offer advantages, it carries certain risks, including the need to survive seven years after gifting, potential challenges from divorce proceedings and the possibility of capital gains tax (CGT) liabilities in some situations.How can we help?
Due to the significant changes, it is essential to seek professional advice to navigate the new framework and ensure your estate planning strategies stay effective and complaint. It is also important to bear in mind that everyone’s situation will be different, therefore it may be necessary to instruct financial advisors and accountants. We are here to help you understand the impacts of the most recent changes and provide tailored advice in managing your estate effectively.For more information on your estate planning, contact us on 0203 794 8280 for a free 20-minute consultation.
