- 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 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.
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