Commenting on the budget statement revealed this afternoon, Les Cameron, head of technical at M&G Wealth, has shared with his key takeaways in relation to the measures announced in today’s Budget as follows:
Capital Gains Tax rates increase
Cameron said: “Capital Gains Tax (CGT) rates have not been aligned with savings rates, as had been widely rumoured in the lead up to today’s Budget, but there has been an increase to the rates. HMRC figures indicated that full alignment would have cost the Exchequer, so the rates announced today are presumably at a level where they are expected to generate revenue.
“What remains to be seen is how investors react. If savers now hold on to their assets until rates come down, this measure won’t bring in any revenue. However, in practice, investors will probably need to buy and sell to ensure their investments continue to meet their risk profile and we will likely see a sell-off at the lower rates before they rise.
“A less appealing CGT regime should result in an increased use of insurance bonds, and other tax wrappers, which has already been underway over the last couple of years, continue.
“While tax rates shouldn’t be the driver of investment decisions, neither should they dictate disinvestment decisions. Those impacted by today’s changes would be best placed to seek professional financial advice to understand how the changes announced today impact their financial plan.”
Pensions brought into IHT
“There have been calls to bring pensions into the IHT regime for some time and the Chancellor has indicated this will be the case by 2027. The reality is that pensions have always been part of the IHT regime. If your estate was entitled to the death benefit on your pension then it was subject to IHT. If you could dictate who received the death benefit, with a few exceptions, then this could be subject to IHT. In practice, most lump sum death benefits are paid at the discretion of the scheme so are not subject to IHT. These principles apply equally to DB and DC pension schemes.”
“Death benefits on most pension schemes are held in trust, making this a significant change with wider implications. Anyone who is currently using their pension to pass on wealth to their beneficiaries may need to consider alternative strategies and would be best placed to seek professional financial advice.
“Seeing the full details of how this will be implemented will be crucial.”
Tightening of Business Relief
“Business relief was always intended to allow family businesses to be passed on without having to pay any death duties but, in many cases, the current uses of business relief are far removed from the original policy intent. Therefore, it’s not surprising that there has been a restriction on the business relief available. Those who are actually running businesses will be glad that the relief remains in place for them.
“The danger of using business relief schemes for inheritance tax planning was there was never a guarantee the relief would still be there on death and that risk has now materialised. People using business relief schemes will now have to re-think and, given the IHT regime is complex, it is an area where most people would benefit from seeking professional financial advice.”
“The changes to business relief mean many people have a decision – either to make keep access to their money and save 20% IHT or to use more traditional gifting strategies and save 40%.
“Business relief always carried a liquidity risk and now with the reduction in their IHT attractiveness we may see those liquidity risks materialising if people choose to retrieve their investments to employ alternative strategies.
“There was always a thought that with business Relief-type arrangements, the IHT tax tail was wagging the investment dog. Now advisers will need to assess for their clients on a case-by-case basis whether the investment remains good enough now that the tax advantages have been reduced.”
No changes to pensions
“Changes to tax-free cash, pensions tax relief and other benefit limits, which were widely rumoured in the lead up to today’s Budget, have not come to pass.
“Part of the Government’s ongoing Pensions Review is working out how to get more of the population to save more for retirement. It is undeniable that the tax incentives on offer are a key attraction for pension savers.
“Any potential changes to pension taxation should be looked at holistically alongside the pension review to ensure the system we have going forward is stable and does not deter people from saving for their retirement.”
“The ‘no change position’ in today’s Budget is significant as a period of stability for pension taxation should be welcomed by all.”
