The Autumn Budget introduced significant changes that impact pension and wealth protection, notably the plan to include inherited defined contribution pensions within the inheritance tax (IHT) regime from April 2027. This move is projected to affect eight percent of estates and generate substantial revenue, prompting individuals to re-evaluate their financial planning strategies.
To protect wealth from IHT, various gifting strategies are highlighted. Individuals can utilize an annual IHT-free exemption of £3,000 per tax year, with the option to carry over any unused exemption to the following year. Additionally, regular "gifts out of income" are exempt from IHT, provided they do not diminish the giver's standard of living, making meticulous record-keeping essential. Larger lump sum gifts are categorized as "potentially exempt transfers" and become IHT-free if the giver survives for seven years after the transfer; taper relief can reduce the tax liability if death occurs within this period.
The Budget also underscores the importance of tax-efficient savings and investments. Utilizing vehicles like Stocks and Shares ISAs and Self-Invested Personal Pensions (SIPPs) allows investments to grow free from capital gains tax and dividend tax, within the £20,000 annual ISA allowance. Making pension contributions can also extend an individual's basic-rate tax band and offers government tax relief.
Further changes in the Budget include the continued freezing of income tax thresholds until 2031, leading to "fiscal drag" where more individuals are pulled into higher tax brackets, particularly those earning over £100,000. Property income tax rates are set to increase from April 2027, with basic-rate taxpayers paying 22%, higher-rate 42%, and additional-rate 47%. The IHT nil-rate band of £325,000 remains frozen until 2031, potentially increasing the number of estates subject to IHT. Tax relief for Venture Capital Trusts (VCTs) will be reduced from 30% to 20% from April 2026, making them less attractive compared to other investment schemes. Positive changes for pensions include allowing well-funded Defined Benefit (DB) schemes to pay surplus funds to retired members from 2027 and the Pension Protection Fund (PPF) providing increases to most pre-1997 pensions for those whose employers became insolvent.