Key Takeaways from the Autumn Budget for Your Estate | Curtis Parkinson
Autumn Budget 2024

Key Takeaways from the Autumn Budget for Your Estate

19 November, 2024 7 minutes reading time


The Chancellor unveiled some significant surprises in the Autumn Budget 2024, particularly for those engaged in estate planning. While Inheritance Tax (IHT) thresholds remain frozen, substantial changes to pensions and Capital Gains Tax (CGT) could dramatically impact your estate planning. Here, we look at the key takeaways from the Budget and examine what measures you can adopt to help you safeguard your assets and protect your loved ones.

Wills, Trusts, and Estates: Understanding the Continued IHT Freeze

The government’s decision to maintain the nil-rate band at £325,000 and the residence nil-rate band at £175,000 per person has significant implications. As property values continue to rise, more estates are likely to exceed the current thresholds, causing a larger portion of the estate to be subject to IHT. This is particularly relevant for those living in areas with high property prices, where even modest family homes can exceed the limits.

It’s worth noting that married couples and those in civil partnerships have a significant advantage regarding IHT. Transfers between spouses or civil partners are exempt from IHT, meaning the surviving partner inherits the entire estate tax-free. Furthermore, the survivor can inherit any unused portion of their deceased partner’s nil-rate band, potentially doubling their IHT allowance.

Key Changes: Property

The budget increased the SDLT surcharge on second homes and buy-to-let properties from 3% to 5%, effective 31 October 2024. This measure aims to curb investment in the property market and make homeownership more accessible for first-time buyers.  If you’re considering downsizing or investing in property, it’s crucial to factor in this increased surcharge and seek advice on structuring your purchase to minimise your tax liability.

Key Changes: Pensions

The budget brought about a major shift in how pensions are considered within the context of Inheritance Tax (IHT). Starting from April 2027, the value of your pension pot will be included in your estate for IHT purposes. This means that if the total value of your estate, including your pension, exceeds the IHT threshold, your beneficiaries could face a substantial tax bill.

Here’s a breakdown of the fundamental changes and their potential implications:

  • Inclusion in IHT calculation. From April 2027, the value of your pension pot at the time of your death will be added to your other assets (property, investments, etc.) to determine the overall value of your estate for IHT purposes.
  • Potential loss of Residence Nil-Rate Band (RNRB). If the inclusion of your pension pushes your estate value over £2 million, you may start to lose the RNRB, which can provide up to £175,000 of IHT relief per person. This could result in a significant increase in your IHT liability.
  • Combined IHT and Income Tax charges. In addition to IHT, your beneficiaries may also face Income Tax charges on inherited pension funds, depending on their circumstances and how they access the funds. This combined tax burden could reach up to 67% in some cases.

Example: Before Pension Inclusion

Pension – Scenario 1: 2024 

John and Anne are married, and their estate comprises:

  • £1 million in investments
  • £0.9 million house
  • £0.8 million pension pot

Total estate value (excluding pension) = £1.9 million

IHT Applicable = £1.9 million – £650,000 (combined nil-rate band for a couple) – £350,000 (combined residence nil-rate band) = £0.9 million taxable

Inheritance Tax (at 40%) = £360,000

Currently, the pension is outside of the IHT calculation

Example: After Pension Inclusion

Pension – Scenario 2

John and Anne are married, and their estate comprises:

  • £1 million in investments
  • £0.9 million house
  • £0.8 million pension pot

Total estate value (including pension) = £2.7 million

IHT RNRB = £2.7 million exceeds the £2 million threshold by £700,000, so RNRB is lost, and an additional £350,000 of the estate is taxed at 40%.

IHT Applicable = £2.7 million – £650,000 (combined nil-rate band for a couple) = £2,050,000 taxable

Inheritance Tax Payable (at 40%) = £820,000

Here, including the pension in the IHT calculation from 2027 onwards results in an additional £460,000 in IHT payable, highlighting the significant potential impact these changes can have.

Key Changes: Capital Gains Tax (CGT)

The Autumn Budget also increased CGT rates for most individuals. Effective immediately, as of 30 October 2024, the lower rate has risen from 10% to 18%, and the higher rate has risen from 20% to 24%.

While the main rates of CGT were increased, the residential property surcharge was not. This now brings tax on assets like shares and managed funds in line with property gains. The capital gains annual allowances, which remain at £3,000 per person and £1,500 for trusts, remained unchanged.

Understanding how these increased CGT rates might impact your financial and estate planning is crucial. For example: 

  • Disposing of Assets. If you’re considering selling assets that would incur a capital gain, you must factor in the higher CGT rates and assess the overall tax implications.
  • Timing of Disposals. You should review the timing of any planned asset disposals, considering the potential benefits of realising gains before further increases in CGT rates.
  • Interaction with IHT. While disposing of assets during your lifetime may trigger CGT, it can also reduce the value of your estate for IHT purposes. It’s essential t

Proactive Steps to Take

While the lack of changes to IHT might seem discouraging, the significant changes to pensions and CGT highlight the importance of proactive estate planning. Here are some key strategies to consider:

1. Utilise Your Annual Gifting Allowance

You can gift up to £3,000 each tax year free of IHT, and any unused allowance can be carried forward for one year. Making small, regular gifts can significantly reduce your estate over time.

2. Consider Larger Lifetime Gifts

Gifts exceeding the annual exemption may be subject to IHT if you die within seven years. However, they can effectively reduce the value of your estate in the long term. For married couples and civil partners, remember that transfers between spouses/civil partners are IHT-free.  Utilising the transferable nil-rate band can be vital for estate planning. Combining this with lifetime gifting strategies can substantially lower the potential IHT liability on the surviving partner’s estate.

3. Explore the Benefits of Trusts

Trusts can be valuable tools for protecting assets and managing IHT liabilities. They allow you to control how your assets are distributed and can offer tax advantages depending on the type of trust used.

4. Review Your Life Insurance Policies

Life insurance can provide a lump sum to cover potential IHT liabilities, ensuring your loved ones inherit your assets without a significant tax burden.

5. Don’t Forget Charitable Giving

Leaving a portion of your estate to charity can reduce your IHT liability. This approach supports causes you care about and helps mitigate tax implications.

6. Review Your Pension Beneficiary Designations

Given the changes to how pensions are treated for IHT, ensuring that your pension scheme has up-to-date beneficiary nominations to express your wishes regarding pension distribution on your death and potentially pay them into trust for IHT planning for future generations is crucial.

7. Consider Alternative Investment Options

Explore investment vehicles that offer more favourable tax treatment for your beneficiaries. This is especially important considering the changes to CGT rates and the inclusion of pensions in IHT calculations.

8. Gift from Surplus (Pension) Income

One often overlooked strategy is gifting from your surplus income. This would involve drawing an income from your pension and gifting any amount exceeding your living expenses.  This type of gifting is not subject to the 7-year rule, meaning it immediately falls outside your estate for IHT purposes.

While you may need to pay income tax on the pension income, this strategy can reduce your estate’s value for IHT and potentially mitigate the impact of the upcoming pension changes. However, seeking professional advice is essential to ensure this strategy aligns with your circumstances and financial goals.

Our Advice

Estate planning can be complex. Moreover,  the recent budget changes have added further layers of complexity. So, it’s better to plan and not wait until it’s too late. Our team of specialist lawyers can provide expert advice tailored to your circumstances. We can help you navigate these changes, understand your options, and develop a robust estate plan tailored to your circumstances.

Please don’t hesitate to get in touch if you need further advice or information. We’re here to help.

Please note that all views, comments or opinions expressed are for information only and do not constitute and should not be interpreted as being comprehensive or as giving legal advice. No one should seek to rely or act upon, or refrain from acting upon, the views, comments or opinions expressed herein without first obtaining specialist, professional or independent advice. While every effort has been made to ensure accuracy, Curtis Parkinson cannot be held liable for any errors, omissions or inaccuracies.

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