Autumn Budget Statement 2024: What it means for your wealth planning in 2025

The Autumn Budget Statement announced in 2024 introduced several significant changes that could impact your wealth planning strategies. From pension reforms to adjustments in tax rates and the treatment of business and agricultural assets, the budget statement calls for a careful reassessment of long-term financial goals. These changes present both challenges and opportunities, depending on your personal and financial circumstances.

Given the complexity of the upcoming tax changes, adopting a detailed and strategic approach to wealth planning is essential. Jason Lloyd, Independent Financial Adviser, breaks down the key areas of the Autumn Budget for 2024 and explains how these changes might affect pensions, Inheritance Tax (IHT), Capital Gains Tax (CGT) and investments.

Pensions and long-term wealth strategies

One of the most direct and impactful changes involves the proposed inclusion of pensions within the IHT framework starting from 6 April 2027. If passed, this could significantly alter how pensions are used as an IHT planning tool. For many, pensions have historically been a key vehicle for mitigating IHT, but this proposed change may prompt a reassessment of that strategy. While the consultation period for this proposal ends in January 2025, proactive planning will be vital to navigate any adjustments.

Pensions have long been subject to fluctuating tax regulations, such as the introduction of a 35% tax on death benefits in 2006 for individuals over age 75, which led many to consider withdrawing from pensions in favour of other assets. In subsequent years, further changes, including the introduction of a 55% tax rate, have continually reshaped wealth planning strategies. These fluctuations emphasise the importance of remaining flexible, adapting quickly to changes to minimise potential tax burdens.

Reviewing alternatives for IHT planning

As pensions potentially lose their IHT benefits, it may be time to explore alternative strategies. Options like gifting excess income, funding a whole-of-life insurance policy or establishing trusts could be viable alternatives. Each approach comes with its own set of benefits and limitations, so it is crucial to tailor your approach to your specific circumstances.

Additionally, broader changes to IHT regulations, particularly concerning business and agricultural assets, further highlight the need to review your wealth planning. Historically, business assets were often assumed to sit outside the estate for IHT purposes, but new measures set to take effect by April 2026 could alter this dramatically. Business owners should reassess their asset protection strategies and may consider transferring assets to discretionary trusts during this planning window to minimise future IHT implications.

Business assets under the microscope

Changes to business property relief could reshape estate planning strategies for entrepreneurs and investors with significant business holdings. Historically, business property has been largely immune to IHT due to 100% business property relief (BPR). However, the government’s new proposals suggest reducing this relief to 50% on assets exceeding £1m. While this change aims to close perceived loopholes, it could affect decisions about reinvesting in or divesting business assets.

For those with investments in the Alternative Investment Market (AIM), which traditionally benefits from the same relief, the proposed changes could also have a significant impact. While the reduction to 50% relief is less severe than the complete removal that some had feared, it introduces new uncertainties. AIM-listed companies may become less attractive for tax-efficient planning, although they still offer opportunities for investors seeking to minimise tax liabilities through ISAs – especially for those who are comfortable with higher market risks.

Agricultural relief and the impact on farming families

Another substantial reform impacts agricultural relief, traditionally designed to safeguard farmers’ estates from significant tax bills. Under the new measures, farmland and related assets above £1m will be eligible for only 50% relief, which could result in a 20% IHT rate for higher-value estates. While the legislation offers flexibility to spread tax payments over a decade, the immediate impact on cash flow and succession planning could be profound.

For many farmers, including the next generation inheriting these estates, this change underscores the need for careful financial planning to prevent future hardship. The complexities of combining agricultural assets with other allowances, such as the residential property nil rate band, make tailored advice essential.

Adjusting strategies for Capital Gains Tax

Capital Gains Tax (CGT) was also in the spotlight, with a revised rate set at 18% and 24% for certain assets. While these rates are lower than the previous 28% rate for properties, the reduction may not drastically alter investor behaviour. Crucially, unlike other taxes, CGT allows greater flexibility in timing, allowing investors to plan when to sell assets to minimise tax liabilities.

For those sitting on significant gains, deferral options like the Enterprise Investment Scheme (EIS) remain available. However, some may prefer to realise the gains and pay the tax now, rather than risk a higher rate in the future. With CGT playing an important role in wealth planning, careful consideration of your overall tax strategy is necessary to optimise your position.

Looking ahead: Next steps

The changes outlined in the 2024 Autumn Budget represent a major shift in how wealth will be taxed in the future. With pensions, business property relief, agricultural relief, and CGT all facing substantial adjustments, now is the time to reassess your wealth planning strategy. Working with a financial advisor can help ensure you stay ahead of these changes and make strategic decisions tailored to your circumstances.

If you need guidance on how the Autumn Budget affects your financial plan, contact us today. We’ll work together to ensure that you’re optimising your tax allowances and protecting your wealth for the long term.

Disclaimer: This article does not constitute tax, legal or financial advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. For guidance, seek professional advice.

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.