Clarity: While it might not get much attention, from a financial services and advice perspective, one of the key takeaways from the budget is that we now have some clarity over the tax planning landscape. There has been several years of speculation regarding possible changes in tax policy, from the abolition of inheritance tax to “taxing you until the pips squeak”, all of which made it difficult to plan with confidence. The arrival of this budget gives the industry some much needed clarity and should give clients and advisers the confidence to act.

 

Tax Rises: The rise in employers National Insurance contributions (NICs) does much of the heavy lifting for the £40bn of additional tax revenue, but it is the changes to inheritance tax that will be most profoundly felt on a personal basis. Some of the most important changes were:

• Nil Rate Band (NRB) and Residence Nil Rate Band (RNRB) frozen to 2030 (increased from 2028): Though this is easy to overlook given the NRB has been frozen since 2009, the fiscal drag this creates will mean the trend of inheritance tax falling on the mass affluent will continue to the end of the decade, at least.
• Unspent Pensions will form part of the estate for IHT purposes from April 2027: In a reverse of the changes made in the 2015 Pensions Review, unspent pensions will once again be taxable to IHT. This is substantial as The Institute for Fiscal Studies estimates that 42% of household wealth is held in pensions meaning many who had no IHT problem pre-budget have one now.
• Business Relief (BR) and Agricultural Property Relief Allowance (APR) introduced: From April 2026, everyone will have a combined BR and APR allowance of £1m which will benefit from 100% IHT relief. Any balance above £1m will benefit from IHT relief at a rate of 50%. Importantly, the allowance is not transferable meaning investors must use it or lose it.

From April 2026, all qualifying AIM shares will benefit from 50% relief regardless of their value.

 

Taken together, these changes are expected to make an additional 10,000 estates liable to inheritance tax while a further 40,000 estates will have additional inheritance tax to pay, raising additional tax revenue of £2.3bn per annum by 2029/30.

 

Dilemmas

The final takeaway from the budget are the planning dilemmas it creates. The disparity between the IHT relief available on Unquoted stock (100%) vs. AIM shares (50%) will lead some to question what they should do with existing AIM portfolios. Anyone who decides to switch will have a dilemma regarding the timing of such a switch as there is no change to the relief available prior to April 2026, but waiting until then will mean the replacement asset will only benefit from 100% relief when it has been held for a further two years. A transfer before April 2026 would benefit from 100% relief immediately (assuming shares were fully qualifying when transferred).

Those holding pensions as an estate planning tool also have a dilemma, particularly where they are considering taking PCLS and using this to reduce their IHT bill. As pensions remain exempt from IHT to April 2027, there will be a temptation to delay. However, given the clock does not start ticking on the alternative estate plan, be that a two year or seven year clock, delay might come at the cost of effective planning, i.e. the investor might die before the four year or nine year period created by the delay has expired.

 

As the complexity of these decisions has increased so has the need for effective planning and with so many estates ‘inheriting’ a tax problem or finding their problem is larger than it was on October 29, the value of financial advice is at a premium. 

 

^{This post offers information on our understanding of the Autumn budget. Foresight does not provide financial, legal, investment or tax advice, and therefore readers should seek specialist independent tax and financial advice for further information regarding this post. Tax treatment is subject to change and depends on individual circumstances. Tax year 2024/25. The information in this post constitutes our understanding as of the date of publication and is subject to change without notice.}