Latest figures from HM Revenue & Customs (HMRC) revealed that inheritance tax (IHT) receipts have risen once again, reaching £5 billion in the first seven months of the 2024/25 financial year, marking an 11% rise compared to the same period last year.
These figures come in the wake of Chancellor Rachel Reeves’ recent Budget, which introduced significant changes to the inheritance tax system. Among the reforms were an extension of the freeze on current inheritance tax thresholds for an additional two years and the inclusion of inherited pensions within the scope of inheritance tax starting in 2027.

Between 2024-25 and 2028-29, the OBR now estimates the Treasury will collect more than £50bn in inheritance tax alone, a 19% increase of more than £8bn compared to the forecast made following ex-chancellor Jeremy Hunt’s Spring Budget in March.

To find out more about the effects of these changes, check out our recent article on succession planning for farmers. 

What is inheritance tax?

Inheritance Tax (IHT) is a tax levied by the Government on the estate of a deceased person in the UK. This includes all of their assets including property, personal belongings, and investments. 
However, this levy only applies to the total value of the estate that exceeds the IHT threshold or ‘nil-rate band’ - NRB. As of the 2023/24 tax year, the threshold is set at £325,000. Anything above £325,000 could be subject to up to 40% inheritance tax and anything below this threshold is tax-free.

The Residence nil rate band also plays a role in inheritance tax. The residence nil rate band was introduced in 2017 and is an amount that can be passed on after death without any inheritance tax payable in addition to the standard nil rate band, giving a potential of £500k exception per person or £1m for a couple.

Why are IHT receipts always on the rise?

The number of estates across the UK that are being pulled into the IHT net are increasing each year.

Total IHT receipts collected by the Government has been steadily on the rise since the IHT threshold freeze. This was initially announced by the then Chancellor, Rishi Sunak, in his 2021 Budget. The Budget outlined that the IHT threshold would be frozen for five years until 2026. However, after ex-Chancellor Jeremy Hunt’s 2023 Autumn Statement, it was confirmed that the freeze would be extended a further two years until April 2028, and then after Rachel Reeves’ 2024 Autumn Statement, this was extended once again for a further two years until April 2030.

Due to wage inflation coupled with ever increasing property value across the UK, the freeze essentially means that a greater number of people will cross the inheritance tax threshold each year. Many have been calling this move an example of ‘stealth tax’, as the freeze ultimately means an increasing number of Britons will fall into the tax threshold each year until the freeze ends in April 2030, and by then the Government will have collected billions in extra inheritance tax.

The inheritance tax allowance of £325,000 was increased from £312,000 on 6 April 2009.  This means the IHT nil rate band has been frozen for over 14 years now and will keep allowances frozen until at least 5 April 2030.  That’s a staggering 21 years of higher taxes on death.

If you’re interested in how to manage your inheritance tax to ensure the best possible wealth protection for you or your family, we can help. Give us a call on 0333 323 9065 or book a free non-committal initial consultation with a member of our team to find out more.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate tax advice.

The Chancellor, Rachel Reeves, announced various changes to legislation in her Autumn Budget in late October 2024, including changes to estate planning. As a result, it has become important now more than ever to plan appropriately for the next generation, especially for those looking to pass down family businesses including family-run farms.

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How Does Inheritance Tax Work?

Inheritance Tax (IHT) is a tax payable on the estate of an individual following their death. There is an IHT nil-rate band (NRB) which is the value of assets that can be passed on without incurring any IHT charge which is currently frozen at £325,000 per person until 2030.

There is also a residence nil-rate band (RNRB) which is an additional IHT allowance of £175,000 per person when property that an individual owned and lived in as their main residence at some point is passed on to their direct descendants (children or grandchildren). Therefore, each individual currently has a maximum IHT allowance of £500,000.

Spouses and civil partners are able to inherit assets on the death of their spouse/civil partner free of IHT, however, those assets would form part of the surviving spouse’s estate. They can also inherit their NRB and RNRB and combine them with their own to provide them with maximum combined IHT allowances of £1m on second death.

If an individual has an estate worth over these allowances on their death, the executors are liable to pay IHT at the rate of 40%.

What is Agricultural Relief?

Agricultural relief is an IHT relief for individuals wishing to pass on their agricultural property to the next generation. Agricultural property includes agricultural land, crops and farm buildings but not animals or equipment. The relief is given on the agricultural value of the land, but not on any developmental value, and it is currently 100% for owner-occupied farms and 50% for landlords who let out their farmland. However, the government are making changes to this relief from the 6th of April 2026, with only the first £1m of agricultural property receiving the full 100% relief and any further agricultural property receiving relief at 50%, meaning any agricultural property over the £1m is taxed at an effective rate of 20%.

If a farm is jointly owned by a married couple or those in a civil partnership, they would be able to make use of their full NRB and RNRBs as well as £1m of agricultural relief each. However, unlike the NRB and RNRB, this £1m allowance is not transferrable to a spouse/civil partner on death. Therefore, a couple could only pass down up to £3m to the next generation completely IHT-free provided £1m was passed on to beneficiaries other than the remaining spouse/civil partner on the first spouse’s/civil partner’s death. If this were not the case, only up to £2m would be able to be passed on IHT-free. As a result of these changes, the government have estimated that 75% of farmers will not be affected by these changes. However, this means 25% of farmers will now leave IHT bills to their beneficiaries upon the transfer of their farming property.

How Can I Reduce My IHT Liability?

Gifting Allowances

There are a number of gifting allowances which can be utilised to reduce the size of your estate and subsequently an IHT liability for your beneficiaries:

Every individual has an annual exemption of £3,000 per tax year, which can be gifted with no IHT consequences. If any of the allowance is unused from the previous tax year, this can be carried forward to the current tax year. Therefore, a couple who did not use their allowances last tax year, can gift up to £12,000 between them IHT-free this tax year, and £6,000 per year thereafter. 
Gifts of up to £250 to any one person in any one tax year are also exempt. This exemption can be used any number of times in respect of different recipients. However, it’s important to note that this exemption cannot be used in addition to larger gifts. For example, if an individual made a gift of £3,250 using up their £3,000 annual exemption, the £250 small gift exemption would not cover the excess amount over the £3,000. However, it’s still possible to make an unlimited number of small gifts of £250 to individuals other than the recipient of the £3,000 gift, in addition to this annual exemption amount. 
Individuals can also make gifts out of their ‘normal expenditure’. To be exempt, these gifts must be made out of an individual’s income, and it must be part of their normal expenditure meaning it is habitual or regular, not just a one-off payment. Payments do not have to be a fixed amount each time, but they must be consistently regular, and the individual must be left with sufficient income to maintain their usual standard of living after allowing for all transfers from normal expenditure. 
There are also various other gifting allowances such those for making wedding gifts and gifts to charity.

Lifetime Gifts

Lifetime gifts can be made over and above these gifting allowances, but they would be constituted as either a Potentially Exempt Transfer (PET) if made to an individual or a bare or disabled trust, or a Chargeable Lifetime Transfer (CLT) if made to the majority of other types of trusts.

If a PET is made and the donor survives for 7 years, the gift becomes fully exempt and escapes tax entirely. However, if the donor does not survive for 7 years after the gift has been made, there may be some IHT to pay.

When a PET is initially made, it uses up the NRB. For example, if an individual makes a PET of £100,000, their NRB allowable against their estate if they were to die before 7 years had passed, would be £225,000. Once 7 years have passed, the NRB would be £325,000 once again.

IHT tapering relief also applies to PETs that are in excess of an individual’s NRB, and they pass away after 3 years of the gift being made which is outlined in the table below. 

For example, if an individual makes a PET of £350,000 in January 2020 and passes away in March 2023, they have used up their entire £325,000 NRB and therefore £25,000 of the gift will be liable to IHT. However, as 3 years have passed since the gift was made, the effective rate of IHT would only be 32% meaning the beneficiary would only pay £8,000 instead of £10,000. In this example, the original donor would have no NRB to offset against their estate as it has been used up by the £350,000 PET, therefore, the beneficiaries of the estate may be liable to pay more IHT.

Whole of Life Insurance Policy

Other avenues can be explored to make plans for your estate and your beneficiaries such as taking out a whole of life insurance policy, with the sum assured being equal to your projected IHT liability. This can be a relatively cost-effective way of making provisions to cover your IHT bill, especially if the policy is taken out earlier in your life which would result in lower premiums. It is important to ensure these policies are written into trust in order to ensure any beneficiaries would receive the full amount otherwise, the lump sum payout would form part of the estate and would therefore be liable to IHT itself.

How we can help

Inheritance tax planning can be an incredibly complex topic, especially when involving trusts. This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

If you are concerned that you may be affected by the changes the government has made to agricultural relief or about your IHT planning in general, please feel free to contact us to book a free initial consultation with one of our expert advisers. We’d be happy to discuss how we might be able to provide you with value and peace of mind going forwards. 

Kirsty Stone, has been present on BBC lately, where she was initially asked to give her thoughts about this important issue on BBC Radio 4 Money Box, but this led to an interview on BBC Radio 5 Live Wake up to Money and live on the BBC News Channel on 19th November 2024.

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate estate planning, tax or trust advice.

The information contained in this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.

The Chancellor Rachel Reeves announced her plan to increase the interest rate HM Revenue and Customs (HMRC) can charge on unpaid inheritance tax, increasing the rate by 1.5%, from 2.5% to 4% above the Bank of England base rate, to charge 8.75% per annum from April 2025.

Presented as a clampdown on tax avoidance, this change could add a significant increase in the monthly payments of bereaved families late in their inheritance tax bill cycle. For a household with an inheritance tax liability of £1m, the late repayment charges would amount to £87,500 a year, or nearly £1,700 of interest per week, payable to HMRC.

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The current system is that HMRC charges late payers by 2.5% interest on top of the Bank of England’s base rate, which fell to 4.75% as recently as last week. However, the new measures proposed in the Reeves’ Budget will raise the base charge to 4% in April 2025, raising an estimated £215m a year for HMRC by 2029-30, according to official figures.

Probate delays could cost bereaved families

As it stands, families have six months to pay inheritance tax after the death of a beneficiary before they become liable to pay any late payment charges. Many families require a grant of probate, which is the legal document used to access the deceased’s funds and take control over any assets they owned.

However, it currently takes an average of nine weeks to obtain a grant of probate, and in some more complex cases, it can take over a year. Recent reports have reported on delays in probate being granted as a result of a backlog at HMRC.  This means that families that for whenever reason cannot access the deceased’s assets within the deadline, may be getting hit with 8.75% tax per annum on their inheritance tax bill while they wait.

What is inheritance tax?

Inheritance Tax (IHT) is a tax levied by the Government on the estate of a deceased person in the UK. This includes all of their assets including property, personal belongings, and investments.

However, this levy only applies to the total value of the estate that exceeds the IHT threshold or ‘nil-rate band’. As of the 2024/25 tax year, the threshold is set at £325,000. Anything above £325,000 could be subject to up to 40% inheritance tax and anything below this threshold is tax-free.

In addition to the ‘nil rate band’ an individual may qualify for the £175,000 residence nil-rate band (‘RNRB’). This is available to those passing on a qualifying residence on death to their direct descendants. 
Any unused nil-rate band or residence nil-rate band following the death of an individual can be transferred to the surviving spouse or civil partner. This means that since 6 April 2020, qualifying estates have been able to pass on up to £500,000 and, if the nil-rate band and residence nil-rate band remain unused, the qualifying estate of a surviving spouse or civil partner is still able to pass on up to £1 million without an Inheritance Tax liability.

There were also new changes announced in the recent Budget with affects pensions and business. More details can be found here.

If you’re concerned about your inheritance tax bill and would like to ensure the best possible wealth protection for you or your family, we can help. Give us a call on 0333 323 9065 or book a free non-committal initial consultation with a member of our team to find out more.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate estate planning, tax or trust advice.

During the Autumn Budget, Chancellor Rachel Reeves announced that inherited pensions will be subject to inheritance tax from March 2027.

Currently, individuals can pass on any unspent defined contribution pension pots to loved ones free of all inheritance tax. But these new measures will mean that the unspent pension value will be combined with your other assets and subject to 40% inheritance tax should the combined value exceed the £325,000 nil-rate band.

This idea has drawn criticism for opening up the possibility of a ‘67% tax trap’ where applying inheritance tax to pensions will result in that money being subject to a double taxation, essentially being taxed once for the inherited pension and then again if death occurred after age 75, subject to the beneficiary’s rate of Income Tax.

How would the ‘67% tax trap’ really work?

Currently, if someone dies before age 75, their beneficiaries get all the pension without any tax taken off. But from age 75, they pay income tax on the money at their marginal rate.

As things stand, from March 2027, beneficiaries may have to pay two sets of tax before receiving an inherited pension. First inheritance tax, then income tax.

Let's say someone dies aged 75 leaving £100,000 of pension chargeable to IHT. Straight away, £40,000 would go to HMRC.

Then, when the family drew the remaining £60,000, they'd pay income tax on the money at their marginal rate. So a higher-rate 40% taxpayer would lose another £24,000.

In total, they'd just get £36,000 from a £100,000 pension, meaning an effective tax rate of 64%.

However, someone who has tipped into the 45% additional rate income tax band would end up with just £33,000, meaning the total effective tax rate rises to 67%.

Who will be affected?

The Government estimates this will result in about 10,500 more estates paying Inheritance Tax than would otherwise have been the case, raising £1.46bn a year by April 2030.

That would constitute a substantial increase on the numbers paying now. The latest available figures from 2020/21 showed 27,800 estates triggered an IHT charge, around 4.4% of total deaths. That figure is sure to rise with this change.

Historically, these high bands of taxation have been intended only for the very wealthy, but with wage inflation to keep up with the high cost of living while tax thresholds remain the same, more everyday working people will be pulled into these higher tax brackets.

Controlling your income with your pension to get the best outcome for your personal financial situation is complex and time-consuming for most people. When dealing with specific margins and tax optimisation, many find that soliciting the help of a financial adviser can free up a great amount of otherwise lost time to focus on the important things.

If you want to find out more, why not give us a call on 0333 323 9065 or book a free non-committal initial consultation with one of our experienced advisers to find out how can help.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate estate planning or tax advice.

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. 

In one of the longest ‘Budget’ speeches in memory, Chancellor Rachel Reeves gave the first Labour Budget speech for nearly 15 years on 30 October 2024.  

Here we’ve summarised the main elements of interest for financial planning, with further details on tax rates and allowances for 2025/26 (to compare to 2024/25) available on the government website.  

If you have any concerns or questions about any of the announcements and would like to speak to one of our expert financial advisers, contact us for a free initial consultation to see how we can help.

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Non- domicile changes

The non-domicile tax regime is to be abolished from 6 April 2025. Domicile will no longer be a feature of the UK tax system and will be replaced by a system based on residency.

The government will:  

• Introduce a new 4-year foreign income and gains regime for new arrivals who have not been UK tax resident in the previous 10 years
• Allow individuals previously taxed on the remittance basis to remit pre-6 April 2025 foreign income and gains using a new Temporary Repatriation Facility
• Reform Overseas Workday Relief
• Replace the domicile-based system for inheritance tax with a residence-based system

VAT on private school fees

From January 2025, 20% VAT will apply to private school fees across the UK and the business rates charitable rates relief for private schools in England will be removed.

Income tax and personal National Insurance (NI)

Income tax bands and personal NI thresholds remain frozen until April 2028. This time period hasn’t been extended and from 2028/29 these bands/thresholds will increase with inflation.

Capital gains tax (CGT) changes

Investors’ Relief

Investors’ Relief (IR) provides for a lower rate of CGT to be paid on the disposal of ordinary shares in an unlisted trading company where certain criteria are met, subject to a lifetime limit of £10 million of qualifying gains for an individual.

This measure reduces the lifetime limit from £10 million to £1 million for IR qualifying disposals made on or after 30 October 2024.

CGT rates

The main rates of Capital Gains Tax (that apply to assets other than residential property and carried interest), will increase from 10%/20% to 18%/24% respectively for disposals made on or after 30 October 2024.

The main rate of Capital Gains Tax that applies to trustees and personal representatives will increase from 20% to 24% for disposals made on or after 30 October 2024.

The rate of Capital Gains Tax that applies to Business Asset Disposal Relief and Investors’ Relief is increasing to 14% for disposals made on or after 6 April 2025 and from 14% to 18% for disposals made on or after 6 April 2026.

Carried interest

Carried interest, which is a form of performance-related reward received by fund managers, primarily within the private equity industry, will be subject to a CGT rate of 32% from April 2025 (current rates are 18% and 28%). From April 2026, carried interest will be subject to a revised regime within the income tax framework.  

Inheritance tax (IHT) changes

Freezing of IHT thresholds

The Inheritance Tax thresholds were already fixed at their current levels until April 2028. This time period has been extended to April 2030. This measure will fix the:

• Nil-rate band at £325,000
• Residence nil-rate band at £175,000
• Residence nil-rate band taper, starting at £2 million

Inherited pensions

From 6 April 2027, when a pension scheme member dies with unused funds or without having accessed all of their pension entitlements, those unused funds and death benefits will be treated as being part of that person’s estate and may be liable to Inheritance Tax. The current distinction in treatment between discretionary and non-discretionary schemes will be removed.  

The change will apply to both DC and DB schemes. It will apply equally to UK registered schemes and QNUPS. This will ensure that most pension benefits are treated consistently for Inheritance Tax purposes, regardless of whether the scheme is discretionary or non-discretionary, DC or DB.  

A small number of specified pension benefits will remain outside scope for Inheritance Tax, including where funds can only be used to provide a dependants’ scheme pension. These are currently out of scope in non-discretionary schemes and so will remain out of scope under this change.  

Pension scheme administrators will become liable for reporting and paying any Inheritance Tax due on pensions to HMRC. This will require pension scheme administrators and personal representatives to share information with one another.  

A technical consultation has been issued on the processes required to implement these changes for UK-registered pension schemes. After the consultation, the government will publish a response document and carry out a technical consultation on draft legislation for these changes in 2025.

The government will continue to incentivise pension savings for their intended purpose of funding retirement, supported by ongoing tax reliefs on both contributions into pensions and on the growth of funds held within a pension scheme.  

Agricultural relief and business relief  

From 6 April 2025, the existing scope of agricultural relief will be extended to include land managed under an environmental agreement with, or on behalf of, the UK government, devolved governments, public bodies, local authorities, or relevant approved responsible bodies.  

From 6 April 2026, agricultural relief (AR) and business relief (BR) will be reformed, as summarised below:

• The 100% rate of relief will continue for the first £1 million of combined agricultural and business property to help protect family farms and businesses, and it will be 50% thereafter.  
• The rate of business relief will reduce from 100% to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM.  

The reforms are expected to only affect around 2,000 estates each year from 2026/27, with around 500 of these claiming agricultural relief and around 1,000 of these holding shares designated as “not listed” on the markets of recognised stock exchanges.  

The government will publish a technical consultation in early 2025. This will focus on the detailed application of the allowance to lifetime transfers into trusts and charges on trust property. This will inform the legislation to be included in a future Finance Bill.

More detail is available at gov.uk. 

National insurance

Employer NI is to increase to 15% (from 13.8%) from April 2025 and the secondary threshold will reduce to £5,000 (from the current £9,100), i.e. employer NI will become payable on an employee’s earnings above £5,000pa.

The Employment Allowance, a National Insurance exemption for smaller businesses, will increase to £10,500 (from £5,000).  

Pensions

Qualifying recognised overseas pension scheme (QROPS)

The Overseas Transfer Charge (OTC) is a 25% tax charge on transfers to QROPS, unless an exclusion from the charge applies.

The government has announced that they are removing the exclusion from the OTC for transfers made on or after 30 October 2024 to QROPS established in the EEA and Gibraltar.

Also, from 6 April 2025, the conditions of OPS and ROPS established in the EEA will be brought in line with OPS and ROPS established in the rest of the world, so that:  

• OPS established in the EEA will be required to be regulated by a regulator of pension schemes in that country
• ROPS established in the EEA must be established in a country or territory with which the UK has a double taxation agreement providing for the exchange of information, or a Tax Information Exchange Agreement

From 6 April 2026, scheme administrators of registered pension schemes must be UK resident.  

Aligning the treatment of transfers to QROPS established in the EEA and Gibraltar with that of transfers to QROPS established in the rest of the world will help to ensure that some UK residents do not benefit from a double tax-free allowance whilst remaining in the UK and reduces the risk of around £1 billion of UK tax-relieved pension savings being transferred overseas across the scorecard.

Changing the conditions EEA schemes need to meet in order to become an OPS or ROPS will mean that they will have to meet the same conditions as those which are established anywhere else in the world.

Requiring scheme administrators of registered pension schemes to be UK resident will mean that all administrators of registered schemes will need to meet the same conditions.    

Further details are available at gov.uk. 

Employee Ownership Trusts and Employee Benefit Trusts

Targeted reforms are to be made to the Employee Ownership Trust tax reliefs to ensure that the reliefs remain focused on the intended purpose of encouraging and supporting employee ownership, whilst preventing opportunities for the reliefs to be abused to obtain tax advantages outside of these intended purposes.

Details are available at gov.uk

Stamp Duty Land Tax (SDLT)

The higher rates of Stamp Duty Land Tax (SDLT) for purchases of additional dwellings (second properties) and for purchases by companies is increasing from 3% to 5% above the standard residential rates of SDLT.  

This measure also increases the single rate of SDLT payable by companies and other non-natural persons purchasing dwellings over £500,000, from 15% to 17%.  

Both changes apply to transactions with an effective date on or after 31 October 2024.  

National Minimum Wage

The National Living Wage will increase from £11.44 to £12.21 an hour from April 2025.  The National Minimum Wage for 18 to 20-year-olds will also rise from £8.60 to £10.00 an hour.

State benefit and state pension increases

From April 2025, a 4.1% increase to the basic and new State Pension meaning the full new State Pension will rise from £221.20 to £230.25 a week, while the full basic State Pension will increase from £169.50 to £176.45 per week.

The Pension Credit Standard Minimum Guarantee will increase by 4.1% from April 2025, meaning an annual increase of £465 in 2025/26 in the single pensioner guarantee and £710 in the couple guarantee.

Working-age state benefits and the Additional State Pension will rise by 1.7% in April 2025, in line with inflation.

Furnished holiday lettings (FHL)

As previously announced, the furnished holiday lettings (FHL) tax regime will be abolished from April 2025, removing the tax advantages that landlords who offer short-term holiday lets have over those who provide standard residential properties.

The current rules provide beneficial tax treatment for furnished holiday lettings compared to other property businesses in broadly four key areas:

• Exemption from finance cost restriction rules (which restrict loan interest to the basic rate of Income Tax for other landlords)
• More beneficial capital allowances rules
• Access to reliefs from taxes on chargeable gains for trading business assets
• Inclusion as relevant UK earnings when calculating maximum pension relief

The abolition of the FHL regime will mean that income and gains will then:

• Form part of the person’s UK or overseas property business
• Be treated in line with all other property income and gains

If you’d like to discuss any of the changes announced in the Autumn Budget or would simply like to explore ways that you can minimise the amount of tax you pay on your wealth, why not get in touch and speak to one of our expert team of advisers. We’re offering anyone with £100,000 in savings, investments or pensions a free financial review worth £500.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning or tax. 

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. 

Nearly 4 months after the general election, Chancellor Rachel Reeves finally delivered her eagerly anticipated Budget this afternoon.

It had been widely reported that there would be tax rises and speculation had been rife that pensions, capital gains tax and inheritance tax could be targeted to raise tax revenue following Labour’s manifesto commitment not to increase taxes on “working people”.

In the end, changes to all three of these areas were announced as Reeves looks to raise taxes by £40bn, though the changes were not to the extent that many had feared.

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Capital Gains Tax

The main rate of Capital Gains Tax will increase for basic rate tax payers from 10% to 18% and for higher rate tax payers from 20% to 24%. This change will take effect immediately. Capital Gains Tax on second properties will remain unchanged.

There had been rumours that capital gains tax rates would be equalised with income tax rates, so the changes could be viewed as relatively modest compared to potential increases of this level.

Pensions

Investors will have been pleased to see that no changes were announced to the maximum tax free cash that can be taken from pensions or the tax relief available on pension contributions. However, it was announced that unused pension funds and death benefits payable from a pension will be included in the value of estates for inheritance tax purposes from 6 April 2027. This will affect individuals who were previously planning to leave their pensions to beneficiaries rather than to spend them in their lifetimes, though income taken from pensions in excess of tax free cash entitlements is subject to income tax and will then form part of the estate for inheritance tax purposes if not spent, so careful planning will be needed to ensure funds are not taxed twice.

Inheritance Tax

Aside from inherited pensions entering the estate for inheritance tax purposes in 2027, there were a couple of additional changes to inheritance tax rules.

Firstly, the freezing of the nil rate band (£325,000) and Residence Nil Rate Band (£175,000) until 2030 was announced. For reference, the Residence Nil Rate Band is generally available when a main residence is passed to direct descendants and this, combined with the nil rate band, generally gives married couples £1m which can be passed to direct descendants inheritance tax free on the second death of them both.

Additionally, there had been rumours that the inheritance tax break on shares listed on the Alternative Investment Market (AIM), if held for two years before death, would be scrapped. However, the Chancellor instead took a ‘half way’ approach by introducing a 20% inheritance tax rate in respect of these shares.

The Chancellor also announced changes to two lesser-known inheritance tax reliefs, Business Relief and Agricultural Relief, which will now be subject to a 20% inheritance tax charge on qualifying asset values over £1 million.

Income Tax, Employee’s National Insurance and VAT

As expected there were no increases in these three areas given they affect “working people”. However, with income tax bandings already frozen until 2028, there was an expectation the Chancellor may extend this date, but this did not prove to be the case, as the Chancellor confirmed the freezing of these bandings would end in 2028.

Given the above changes were not to the level expected, how has the Chancellor raised £40bn?

Employer’s National Insurance

A large proportion of this £40bn (an estimated £25bn) will be funded by a large increase in employer’s National Insurance contributions from 13.8% to 15% and a reduction in the threshold from which these are paid from £9,100 to £5,000.

Stamp Duty on second properties

Landlords will be disappointed to see the stamp duty surcharge on second properties increasing from 3% to 5% with effect from 31 October.

Non-Dom tax status abolished

As expected, the Chancellor confirmed Labour’s plans to abolish “non-dom” tax status.

Overall, after weeks of speculation, the tax rises announced in the budget were not to the extent that many had feared. Individuals with pensions will be relieved to see no reduction in their maximum tax free cash entitlement and no change to the tax relief they can receive on pension contributions. Investors may also feel increases in capital gains tax rates could have been worse. Instead, businesses were left to fund the majority of the tax rises through their National Insurance contributions.

However, these changes to inheritance tax, pensions and capital gains tax rules will mean financial plans will need to be revisited. To discuss the implications of the budget for your personal financial situation, please contact your TPO Independent Financial Adviser.

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The Financial Conduct Authority (FCA) does not regulate estate planning or tax advice.

This article is intended as information only and does not constitute financial advice.  

The opinions shared in this article are solely those of the individual and they do not necessarily reflect those of The Private Office.

The information contained in this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.

It is often said that as a parent you should provide the very best education you can afford, as a child’s future success can be heavily impacted by the quality of education that they receive. Many families spend years saving to afford a private education for their children, making many sacrifices along the way. *

However, with the change in Government, the landscape of private school fees has dramatically shifted.

On 29 July, in her first speech as Chancellor, Rachel Reeves outlined Labour’s plans to ‘rebuild Britain’, including their intention to remove the VAT exempt status of private school fees. From 1 January 2025, private school fees are now subject to 20% VAT, which could have far-reaching implications for families already stretching their budgets to cover these costs.

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Private day schooling currently costs an average of £15,324 per year, whilst boarding schools cost around £39,006, with quite a wide range up to £55,000 per annum. If you add in annual increases of about 5% on average, this can quickly make this unaffordable for many families. 

Based on an average annual cost of £15,000, the introduction of VAT on private school fees will increase costs by an average around £3,000 a year. This poses a significant financial challenge, particularly for middle-income families who, as noted often make considerable sacrifices to put their children through private education. Contrary to popular belief, not all parents of children attending private schools are very wealthy; in fact, many are cutting back on holidays, remortgaging their homes and accepting help from grandparents to afford their children’s education. **

According to the Institute for Fiscal Studies (IFS), around 6-7% of all students in the UK attend private schools, and since 2010 the gap in funding between independent vs state schools has more than doubled in favour of the private sector. Labour argues that their policy will help fund 6,500 new teachers in the state sector, aiming to improve the struggling state system. However, if families are unable to meet the increased costs of private education, there is a risk that more children may enter the state system. Each additional pupil costs taxpayers an average of £8,000 annually, which could strain the Treasury’s ability to fund improved state education outcomes.  

Advanced Payment Plans – Effectively Already Ended

In response to these changes, some private schools offered advanced payment plans, providing discounts for paying upfront. However, the Government has introduced anti-forestalling provisions, meaning any advance payments made on or after 29 July 2024 for fees relating to a school term after 1 January 2025, will still be subject to 20% VAT.

How some schools are preparing

Some schools took measures in response to the announcement. For example, to keep education accessible for as many families as possible, the Grammar School at Leeds revealed their plans to use internal reserves to offset the impact of VAT for the upcoming academic year, but this can only smooth the impact of any cost increases. Other schools worked hard to mitigate costs, adjust their fee structures and communicate with parents as soon as possible. 

How you can start planning ahead

Considering the potential rise in costs, families should prepare ahead and develop robust financial strategies. Here are some to consider: 

• Start saving early – Families can leverage on compound interest by starting to save as early as possible.
• Consider contributions from Grandparents – In order to make tax-efficient contributions to school fees and lower the possibility of inheritance tax on their estate, grandparents can utilise their annual gifting allowance, which is currently £3,000 each. Gifts out of excess income may also be exempt, or they could establish trusts to pay fees. Trusts can be complex though, and not all families want to do this.
• Financial scholarships – Many private schools offer bursaries and scholarships to students who demonstrate academic excellence, artistic or sporting ability for example. Start researching and applying early to increase chances of securing one. With costs under greater scrutiny, these may come under pressure.
• Plan ahead for annual increases – Private school fees often rise by more than inflation and have averaged around 5% each year; when you combine this with 20% VAT on top, this is a significant increase so planning ahead for future increases is vital.
• Consider moving into the State Sector – If the costs are the straw that for you will break the camel’s back then you may wish to look at moving your children into the state sector now to have a better chance of a place at your chosen school.
• Please plan carefully, make sure that you can still retire at the time and in the manner you wish too; funding school fees may be a step too far.

How we can help

As private school fees rise, it’s more important than ever to actively engage in proactive financial planning. Seeking financial advice can help families develop comprehensive strategies, explore tax-efficient options, and create contingency plans while properly exploring how your children’s education fits within your own financial plan. 

If you would like to learn more about how we may be able to help you plan for your child's future, why not get in touch and speak to one of our advisers for a free initial consultation. 

Sources: * Inews.co.uk; **Telegraph

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

The Financial Conduct Authority (FCA) does not regulate tax or trust advice. 

What does Rachel Reeves’ first budget have in store for your finances, and what action should you take now to protect against the possible changes?

When Keir Starmer stood in the garden of Downing Street on 27 August, he spoke of ‘Fixing the Foundations’ of the country and of a ‘£22 billion black hole in public finances’.  This has led commentators to conclude that if tax rises weren’t planned in Rachel Reeves’ first budget before, they certainly will be now.

When is the Autumn Budget?

The Autumn Budget will take place on 30th October 2024.

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What is likely to be in the Autumn Budget?

When Labour ran for election, they ruled out raising taxes on ‘working people’ and specifically pledged not to increase Income Tax, National Insurance, VAT or Corporation Tax.  This potentially limits the taxes they can look at (though we would expect Income Tax thresholds to remain frozen until 2028 as announced by the previous government) and we have summarised our views on these various taxes below:

Pensions

Though this would technically be a change to income tax, one possibility for the Government would be to reduce tax relief on pension contributions for high earners.  We already have the pensions’ ‘annual allowance’; which limits pension contributions for very high earners, but there is currently the opportunity for those paying higher rates of income tax, but with overall income below the threshold required to have a tapered ‘annual allowance’, to benefit from significant tax relief and the Government could look to limit this.

Another potential change to pensions is reviewing their beneficial tax treatment upon death, where they fall outside the individual’s estate for inheritance tax purposes and can be passed to future generations at attractive rates of tax.  Though taking action in the anticipation of potential future legislation changes would be inadvisable, if changes to pension death benefits are announced in the budget, financial plans will need to be reassessed.

Finally, the 25% tax free lump sum available from pensions has been talked about as an ‘at risk’ benefit for years, but it would certainly be viewed as unfair if this was targeted now, given that people have been saving towards retirement expecting to benefit from this.  Additionally, changes to the ‘Lump Sum Allowance’ have only just come into force in the current tax year and the Government has already said it will not be reintroducing the Pensions’ Lifetime Allowance, so they may be reluctant to tamper with this area further.

Capital Gains Tax (CGT)

With capital gains above the £3,000 annual exemption taxed at just 10% for basic rate tax payers and 20% for higher rate tax payers (higher rates apply for second property sales), there are rumours that the Government will review CGT rates. 

However, HMRC’s own projections indicate equalising capital gains tax and income tax rates could actually reduce the Government’s overall tax take, given this would discourage individuals from selling assets (and crystallising gains) so they may instead decide to retain them.

Additionally, it should be noted that cost prices for capital gains tax purposes are currently rebased on death (meaning gains essentially die with the individual) and if this was changed, financial plans would need to be revisited.

Inheritance Tax (IHT)

With the UK inheritance tax rate currently 40%, it is somewhat surprising that the tax only raises c. £7bn p.a. (of a total tax take of c. £1trillion in 23/24).  The reasons for this are the various reliefs available, including:

The ability to gift unlimited amounts to individuals with, broadly speaking, no tax consequences if the donor lives seven years following the gift).

The ability for couples to pass up to £1m between them tax free to direct descendants upon death.  

The Government could look to limit some of these reliefs and with £1 trillion of wealth expected to change hands in the UK in the 2020s alone, according to the Financial Times, the Government could see this as an area to focus on.

How will the Autumn Budget affect me?

We of course do not know what changes will be announced in the Autumn Budget on 30th October and, crucially, from when they take effect. 

So, what can you do to protect your wealth? 

This means there may or may not be time to take action following the budget, and while we would discourage taking action on the basis of rumours, there are actions that can be taken before the budget to take advantage of reliefs that are available now but could be at risk post 30 October.  

To speak to an Independent Financial Adviser about how the Autumn Budget might affect you and any actions you could consider ahead of the budget, please contact us for a free initial consultation.  

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The details in this article are for information only and do not constitute individual advice.

The Financial Conduct Authority (FCA) does not regulate estate planning, tax or trust advice.

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.

The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a reliable indicator of future performance.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.  Your pension income could also be affected by the interest rates at the time you take your benefits.

A recent Freedom of Information (FOI) request submitted to HM Revenue & Customs (HMRC) has revealed some shocking figures on the number of estates paying Inheritance tax (IHT) on gifts that don’t comply with the seven-year-rule.  

The figures revealed the number of estates paying IHT on gifts more than doubled from 590 in 2011-12, to 1,300 in 2020-21. Equally, the amount HMRC collected on gifts also more than doubled, from £101m in 2011-12 to £256m in 2020-21, demonstrating yet another stealth tax to add to the rapidly growing list of ways the Government covertly increases their tax coffers. And as more and more people are now gifting money to their children to get on the property ladder, the problem is only getting bigger!

The seven-year-rule

The seven-year rule is a useful relief for families, allowing large gifts, such as money for house deposits and university fees, to be made tax-free. HMRC will investigate any gifts where it suspects that tax has been underpaid or avoided.

Under the rule, certain gifts are tax-free if the donor lives for at least seven years after making them. If the donor dies before then, the gift is included in their estate and may be taxed, depending on the estate’s value.

However, gifts made in the three years before death can be taxed at 40% and those given between three and seven years before death are taxed on a sliding scale, starting at 32% and falling to 8%. This means that gifts must be given more than seven years before death to be tax-free.

What is IHT?

Inheritance Tax (IHT) is a tax levied by the Government on the estate of a deceased person in the UK. This includes all of their assets including property, personal belongings, and investments.  

However, this levy only applies to the total value of the estate that exceeds the IHT threshold or ‘nil-rate band’. As of the 2024/25 tax year, the threshold is set at £325,000. Anything above £325,000 could be subject to up to 40% inheritance tax and anything below this threshold is tax-free. 

In addition to this is something called the residence nil-rate band (RNRB). Anyone passing a family home to a direct descendant gets an additional £175,000 tax free allowance, provided their estate is worth £2 million or less. This allowance decreases by £1 for every £2 that the estate exceeds the £2 million mark.

For more information on IHT, check out our complete IHT guide.  

If you’re interested in how to manage your inheritance tax to ensure the best possible wealth outcomes for you or your family, we can help. Give us a call on 0333 323 9065 or book a free non-committal initial consultation with a member of our team to find out more.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

The Financial Conduct Authority (FCA) does not regulate estate planning, tax or trust advice. 

Receiving and managing an inheritance at any point in time can be both a financial and emotional challenge. For many, receiving a windfall from their parents, grandparents or other loved ones comes with a mix of grief and financial responsibility. Navigating this change in finances requires careful consideration to ensure the money is used wisely.

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The Emotional Impact of Receiving an Inheritance

Inheriting wealth often follows from the loss of a loved one, which can complicate decision making. Grief can often cloud your judgement, leading you to make impulsive financial decisions. It is advisable to take your time before making any major decisions and it may be worthwhile seeking guidance from professionals.

What To Do With The Windfall

When the time is right, the first step is to evaluate your financial situation. This involves understanding your current debts, savings and long-term goals. Consulting with a financial adviser can help to provide you with clarity and understand how you can utilise your inheritance within your financial plan. 

However, it’s important to consider that while you are in a holding period and managing a substantial sum of money, it might be beneficial to temporarily place these funds in an easy access savings account.  The Financial Services Compensation Scheme (FSCS) protects larger sums following certain events such as house sales, redundancy payouts and an inheritance known as the temporary high balances. This protects up £1 million for six months should the worst happen.

In addition, you could place the inheritance money in a National Savings and Investment (NS&I) savings account. This option provides maximum security and competitive interest rates. Since NS&I products are backed by the government, you have full financial protection and do not need to worry about the Financial Services Compensation Scheme limit of £85,000 per person per product.

Potential Financial Options

What you should do first will depend on what form your inheritance takes, for example, cash, assets or property. Below are a couple of examples of what you could do with your inheritance:

Spending: 

Whilst it’s important to secure your financial future, it’s also valuable to enjoy a portion of your inheritance. Whether it’s a dream holiday destination, home renovations or purchasing a new car, these experiences can bring joy, especially during challenging times.

Saving: 

Keeping some of the inheritance in a high interest savings account or as an emergency fund is a relatively safe option. This will ensure you have accessible funds and provide you with financial security in the case of unexpected expenses.

Investing: 

Depending upon your risk tolerance and financial goals, investing a portion of the inheritance can offer long-term growth potential. Diversifying investments across different asset classes such as equities and bonds can help mitigate the risk whilst potentially increasing your wealth over time. Ensuring you are invested in tax-efficient vehicles and making use of your available allowances. For example, Individual Savings Accounts (ISAs) can shelter your wealth from income and capital gains tax, and every tax year adults over the age of 18 have an ISA allowance, currently £20,000.

Pensions: 

Increasing your pension fund can be a highly tax efficient option, especially if retirement is on the horizon. Additional contributions can enhance your retirement lifestyle and provide peace of mind in retirement. By making a personal contribution to your pension you can benefit from tax relief (subject to individual circumstances), and this can be advantageous if you are a higher or additional rate taxpayer. Also, pensions are outside of your estate for inheritance tax purposes, so you can protect your inheritance that you receive and pass onto future generations.

Charity: 

Some people also consider donating a portion of their inheritance money to charity. Inheriting wealth has the potential to increase your own inheritance tax liability. To help overcome this, you could gift a portion of your estate to charity, in your will, and you could benefit from a lower inheritance tax rate of 36% (subject to gifting at least 10% of your net estate to charity), which is lower than the current 40% tax rate. 

Balancing Personal Needs and Financial Goals

A key challenge is balancing immediate luxury expenses with long-term financial security. It is important to avoid impulsive spending and to focus on how the inheritance you have received can support your financial objectives. Paying off a mortgage may take priority over luxury spending, as can the costs of educating children or enhancing your retirement fund.

The Importance of Financial Planning

A comprehensive financial plan can help you navigate the complexities of managing an inheritance. This overall plan should include:

Short Term Goals: consideration to paying off high-interest debts, securing an emergency fund for immediate income needs or unexpected expenditures.

Medium Term Goals: investing for the medium term for the next 5 years or more. For example, say you have plans to purchase a new car or even a holiday home in 5 years’ time but do not need this money in the near term, you could consider investing this portion of the wealth. However, it's advisable to discuss this and your attitude to investment risk with a professional.

Long Term Goals: planning for retirement or leaving a legacy for your loved ones. For example, money that is not needed for 10 or more years could be invested in your pensions to bolster your retirement fund and provide you with peace of mind for when this time comes.

Inheriting wealth can be challenging to deal with, particularly when you are also grieving the loss of a loved one. Engaging with a financial adviser can help you to plan and manage your finances that align with your goals. With their guidance, you can develop a strategic financial plan that integrates both your current assets and inheritance. Together, you define your short, medium and long-term objectives, ensuring your wealth is invested in tax efficient vehicles and is allocated appropriately to meet your different goals and time horizons.

If you’d like to learn more and discuss your own personal situation why not get in touch and speak to one of our experts today to see how we can best support you.

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The details in this article are for information only and do not constitute individual advice.

The Financial Conduct Authority (FCA) does not regulate estate planning, tax or trust advice.

Investment returns are not guaranteed, and you may get back less than you originally invested. 

The information provided in this article is based on our understanding of the current allowances and legislation and is subject to change.