Emily Deane TEP, Technical Counsel and Head of Government Affairs at STEP, the global membership body for inheritance advisors responds to the Autumn 2024 Budget stating that "It is disappointing that the government has not seized the opportunity to increase the inheritance tax nil-rate-band. Subjecting pension pots to a 40% tax will also come as a shock to many and unfairly penalises pension savers."
Pensions & Inheritance Tax (IHT)
The government has announced a shocking change that estates with lump sum pension payments will become subject to 40% tax. This could cause huge difficulty for families who rely on the payments after the death of a loved one to mitigate debts like mortgages, medical bills or funeral expenses. This is a substantial reform that unfairly penalises people who have spent years accumulating their pension pot and had planned for a particular level of income. We strongly recommend that individuals, families and their advisors re-visit their financial arrangements in light of the change.
No Increase To The IHT Nil Rate Band
It is disappointing that the government has not seized the opportunity to increase the nil-rate band, which has been frozen at £325,000 since 2009 and is completely unaligned with inflation. As property and assets prices increase, the threshold continues to stay the same and is looking to stay that way until at least 2030.
Agricultural & Business Property Relief & IHT
We are concerned that the government has announced it will reform agricultural property relief and business property relief from 6 April 2026. Relief of up to 100% has always been available on qualifying business and agricultural assets in addition to existing nil-rate bands and exemptions. However, from 6 April 2025, the 100% rate of relief will only apply for the first £1 million of combined agricultural and business property and it will be 50% thereafter.
This will come as a huge shock to agricultural businesses that have limited cash flow and may result in financial strain on family businesses and farms being forced to sell. In reality, most farmhouses with barns and acres of land to farm on will be valued at £1 million plus and it is unrealistic to think that the average farmer will not be financially impacted by this reform. STEP is calling for the government to increase this ill-considered threshold if it is going to proceed with the changes.
Non-Dom Reforms: STEP’s Initial Response
After much speculation, the non-dom reforms will be implemented from 6 April 2025 broadly as expected but with several important changes from the proposals first announced by the Conservatives.
Overall, the regime will be slightly more favourable than had been feared by existing non-doms. Of particular interest is the reduction in the inheritance tax ‘tail’. This is the idea that those who have lived in the UK for ten or more tax years become exposed to UK inheritance tax not only while they live here but also for some time after they leave.
It is a particularly important consideration for the internationally mobile. The tail was originally proposed to be ten years, but now it will depend on how long a person has been UK resident and can be as little as three years.
Some existing non-UK-resident trusts will also continue to benefit from a limited version of their existing inheritance tax protections.
As expected, non-UK trusts will lose protected status from 6 April 2025. Subject to some important exceptions, if such a trust has a UK resident settlor then income and gains in the structure may be taxable on the settlor from that date. As much as this will be disappointing for some, several sensible changes are at least being made as to how the attribution rules work here. For example, settlors are being given an extended right to recover from the trust any income tax that they pay on trust income. Some of the definitions in the legislation are being clarified to reduce confusion and settlors will be able to set personal losses off against attributed gains.
Capital Gains Tax (CGT)
The Chancellor announced increases to CGT in the Budget. STEP has advocated for stability in CGT rates as recently as May this year (see our consultation response). We have emphasised the importance of maintaining stable CGT rates to support effective estate planning and ensure compliance. We believe that four years is too short to be competitive with other European jurisdictions. A longer period of ten years’ residence, with a fixed annual charge in respect of foreign income and gains (regardless of remittance), seems to us to offer a more realistic incentive and a more competitive plan.
Consultation Paper On Tackling Offshore Tax Non-Compliance
The government has announced a new consultation on tax non-compliance. We have previously expressed concerns about proposals related to tackling offshore tax non-compliance, particularly in response to government consultations on raising tax standards and addressing offshore tax issues. We’ve generally highlighted the importance of ensuring that any new regulations do not impose unnecessary burdens on tax advisors who are already compliant with professional standards.
About STEP, the professional body for inheritance advisors:
STEP is the global professional association for practitioners who specialise in family inheritance and succession planning. We have more than 21,000 members in 96 countries. STEP works to improve public understanding of the issues families face in this area and promotes education and high professional standards among its members. STEP members help families plan for their futures, from drafting wills to issues surrounding international families, protecting the vulnerable, family businesses and philanthropic giving. Find out more at www.step.org
%20copy%20(4)%20copy-Medium-Quality%20(1).jpg)
.png){kind=logo}
