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Budget: Handelsbanken WM’s Christine Ross summarises key changes advisers need to know

Following today’s Budget, Christine Ross, Head of Private Office (North) and Client Director, Handelsbanken Wealth Management comments: 

“Savers and investors, together with owners of small businesses, may heave a huge sigh of relief – at least for now.  The long rumoured increase in capital gains tax did not materialise.  Business owners preparing for a sale will still be vigilant but can relax at least until March next year.  Whilst this tax is paid by fewer than 300,000 individuals each year it potentially has the greatest impact on those selling businesses that have been built up over decades.  It used to be that business and non business assets were taxed at different rates. This was replaced by Entrepreneur’s Relief that, until March 2020 provided for up to £10m of gains to be taxed at a rate of 10%.  This has been replaced by the less generous Business Asset Disposal Relief which provides for £1m of gains to be taxed at the 10% rate.  Rumours are that CGT will increase to 28% – moving in line with the current rate applicable on disposals of residential property – but for now that is just a rumour.

Those selling a residential property now have slightly longer to pay any capital gains tax due.   Capital gains tax is usually payable on 31st January following the tax year in which the gain is realised, but the rules changed in 2020 for the sales of residences when tax became due 30 days after the sale.  The Treasury appears to have taken note of the impact of the tight deadline which has now been extended to 60 days following disposal.

A tidy up of inheritance tax reliefs also appeared to be on the cards although the recommendations published by the Office of Tax Simplification are now two years’ old.  These  included the replacement of the various annual gift exemptions with a single allowance. This would have had the greatest impact on those gifting their surplus incomes which still allows potentially significant amounts to be given away and to fall immediately outside of the taxable estate.

There had been some suggestion that the Chancellor would seek to make changes to pension rules, specifically with regard to death benefits.  The inference was that these are too generous and had been the motivation behind approximately 200,000 defined benefit pension transfers.  Investment-based pension savings can be passed to heirs free of all taxes in the event of death of the pension scheme member before age 75.  On death after 75 the beneficiary pays income tax at their own rate when drawing funds.  In neither case is inheritance tax payable.   This contrasts with the situation when a member draws a pension from an occupational defined benefit scheme.  These ‘gold plated’ arrangements offer the security of an increasing lifetime income together with a spouse’s benefit following the death of the member but no return of additional value if the member dies early.  The ability to control the pension and leave any residual funds to family members has, for some, been a very attractive feature of the pension changes introduced in 2015.

Whilst there is some truth in the suggestion that the current regime has caused individuals to transfer out of defined benefit pension schemes, relatively few will have more in their pensions that will be needed to fund their retirement.”

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