What the Autumn Budget means for tax year-end

At a glance

• The Autumn Budget directly affects anyone planning to sell assets or leave a legacy.
• These changes may impact your long-term financial planning, and now is the time to reassess your options.
• Financial advice at this point can prove invaluable in helping you calculate your next moves, and your best moves.
  

This was a Budget that moved the goalposts for those with long-term financial plans in place. Chancellor Rachel Reeves called it a Budget to fund investment, fuel growth and fill a £22 billion-pound black hole’ in the public finances. And she looked to ‘those with the broadest shoulders’ to bear the weight of the £40bn tax raises – the second biggest in history. For those with ‘broader shoulders’, changes to tax rates and thresholds directly impact long-term planning, not simply short-term budgeting.

Proposed changes to IHT in 2027 will affect plans to pass on a good inheritance. Changes to CGT are affecting sales of assets already, which could alter financial planning for retirement, or long term care costs.

So – do you unpick everything, change your plans, or do you leave your plans as they are and hope that the situation may change again in the future?  

The key to protecting yourself and your family is  ‘advice, advice, advice’. You may have more options and opportunities than you think.

Key changes of the Autumn Budget

• CGT on sale of investments, shares or other assets has risen from 10% to 18% for basic rate tax payers and from 20% to 24% for higher or additional rate taxpayers.
• It has been proposed that IHT will be payable on unspent defined contribution pension pots from 2027.
• More people are likely to pay 40% IHT.
  

Proposed changes to pensions and what to do about them

Traditionally, your pensions would be the last thing that you would touch, after drawing down on savings and ISAs. Using your savings, would reduce the overall taxable value of your estate, while preserving the pension to pass to future generations without being liable to 40% IHT.

This is currently under discussion and may change from 6 April 2027. While you can still draw down 25% of your pension as a tax-free lump sum (up to £268,275), any unspent pension will potentially be counted – and taxed – as part of your estate when you die from 2027.

The Budget has left thousands wondering whether to draw their pension, take the hit on income tax but then be able to gift some of the money to loved ones.

What you could do

• Use your annual £3,000 IHT gifting exemption (£6,000 for a couple) to give money to family or loved ones during your lifetime, instead of as an inheritance. This will reduce the size of your estate over time.
• Make a gift of over £3,000. If however you die within 7 years of making the gift, the gift will be counted as part of your estate.
• Make regular monthly ‘gifts’ to family members, or cover some of their outgoings, such as childcare or school fees on a regular basis. These are tax free – so long as they’re genuinely made from disposable income and do not effect your own standard of living.
• Consider spending more of your pension pot on yourself, or others.
• Take out a Lifetime Assurance policy to help cover the eventual IHT bill.  

Can I take out insurance to cover my IHT bill?

Another route to consider is to accept your IHT liability, but protect your family by planning for it. You could, if you have the disposable income, take out a whole of life insurance policy to cover off the anticipated bill. These policies last for your whole lifetime and pay out a tax-free lump sum to your family when you die. This lump sum can be used to pay the IHT. It can provide peace of mind for everyone, as well as a comforting sum of money.  

You would need to be sure you’d be able to afford these payments to the end of your life. Your adviser can help you feel confident that you’ve left yourself enough money to see you or your partner out.

Should I start giving money away in my lifetime?

You can gift up to £3,000 a year tax-free – and if you didn’t make a gift the previous tax year, you could potentially gift £6,000. If you have a spouse or civil partner, they can also make similar gifts, which is a good way to start passing money on.

You can gift larger sums, known as PETs or Potentially Exempt Transfers. What that means is, they will be exempt from IHT so long as you live another seven years after making the gift. If you die before that, the amount moves back inside your estate – although the amount of IHT you’re liable for may taper off depending on the size of the gift if you survive three years or more.
So, absolutely worth being generous!

Should I spend a bit more of my pension?

The short answer is, why not consider it? You earned it. But you could also consider spending it on other people too. This could be an opportunity to start moving wealth between generations and helping people out with some of their living expenses at the same time. If you offer to cover day care fees, or mortgage repayments, even health insurance from your disposable income as part of your gifting allowances, it’s potentially free from IHT.

Changes to Capital Gains Tax and what to do about them

Capital Gains Tax (CGT) – the tax you pay if you sell an asset that’s gained in value – was, as expected, targeted in the Budget. The lower rate of CGT has risen from 10% to 18% for basic rate taxpayers. And for higher and additional taxpayers, CGT has increased from 20% to 24% which came into immediate effect on 30 October this year. The rates on selling additional property didn’t change. So if you were planning to sell an asset in the short term, or living off the proceeds of a sale as part of your retirement income plan, it’s time to think about what your options are.

What you could do

• Reconsider your timing. Do you need to sell all of the asset at once? If you spread the sale over several tax years, you won’t pay CGT so long as you stay within your CGT annual exemption which is currently £3,000 for the 2024/25 tax year.
• If you’ve got to sell, always ensure you use your full £3,000 CGT annual exemption. You can’t carry forward the allowance, but you can offset losses made in the current year and previous years against a gain. You need to declare all losses to HMRC on your tax return within four years after the end of the tax year in which you sold an asset.
• Gift some of the asset to your spouse or civil partner. There’s no CGT to pay on the transfer. When they sell, they’ll have their own CGT £3,000 exemption (any transfer must be on an outright and unconditional basis).
• If you need to sell, look at reinvesting your gain in tax-friendly places such as ISAs, JISAs or pensions.

Talking to your adviser and looking at all your assets, helps you map out a tax-efficient solution.

Exploring your options post-Budget

Now the dust has settled, it's time to assess how you adapt. You can have all the plans in the world in place - but if they're set in stone, they could sink you. Being able to adapt your financial plan means you ride the tide, and stay buoyant. This is when good financial advice can become invaluable.

Most importantly, don't lose sight of your own personal goals. Keep those front of mind – that’s what you set your course by.  

We can still help you achieve them. You just might have to get there by a different route.

Concerned about how the Autumn Budget might affect you and your family?

We’re here to help you explore all your options. Do get in touch with your financial adviser if you’d like to talk.

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