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Published: 11 November 2024

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written by

Ife Igunnubole BA Dip (Hons) MA CII (Cert)

-Financial Protection & Estate Planning

Rachel Reeves has delivered her first budget, unveiling significant measures that have both direct and indirect implications for our clients. Here are the most relevant points that will likely impact our protection advice:

Key Budget Announcements:

1. Increased Taxation and National Insurance (NI):
• This budget will raise taxes by £40 billion to address public finance gaps, affecting overall disposable income for many clients.
• From April 2025, National Insurance contributions for employers will increase from 13.8% to 15%, and the earnings threshold for businesses will lower from £9,100 to £5,000. This change could add financial strain on both business-owning clients and their employees.
• Capital gains tax rates are increasing (from 10% to 18% on the lower rate and from 20% to 24% on the higher rate), impacting clients with investments outside of tax-advantaged products.
2. Inheritance Tax (IHT) Threshold Freeze:
• The IHT threshold will remain frozen until 2030, drawing more estates into the tax net. This reinforces the importance of life insurance policies designed to offset IHT burdens, particularly as wealth planning becomes more crucial with these extended thresholds.
3. Minimum Wage and Income Thresholds:
• Minimum wage increases to £12.21 for adults and £10 per hour for those aged 18-20, starting April 2025. The income tax and NI thresholds remain frozen, effectively increasing tax burdens as wages rise. For clients concerned about maintaining their standard of living, a review of their protection needs is more relevant than everNew Investments in Key Sectors:
• Education, healthcare, and housing will receive substantial funding, with £6.7 billion earmarked for education capital projects and £5 billion for housing investments. These enhancements may indirectly affect clients’ financial plans, especially those involved in these sectors.

Protection Advice Implications

Given these updates, Secure Mortgages & Protection can enhance our support for you by:

• Estate Planning Reviews: Proactively discussing how tailored life insurance solutions can help manage this tax burden and protect your estate for your loved ones. A well-structured life insurance policy in trust can be a cost-effective tool in covering potential IHT liabilities, ensuring that your beneficiaries receive their intended inheritance without a substantial portion going toward taxes. By placing a policy in trust, you can help:
• Reduce the taxable value of your estate: Ensuring that the life insurance payout does not contribute to your estate’s IHT liability.
• Provide funds to cover IHT: The tax bill is covered without requiring the sale of family assets.
• Enable timely access to funds: Bypassing probate delays, ensuring your beneficiaries receive support when they need it most.
• Income Protection and Coverage Adjustments: With increased wage minimums and unchanged tax thresholds, clients might need to reassess coverage for financial resilience. This is an ideal time to review their existing income protection and life cover options.

 Pensions and Inheritance Tax

Residual pension value at point of death will now form part of your estate for IHT purposes.

The current assumption is it will be treated like all other IHT liable assets.

• Usual exemptions such as Nil Rate Band and spousal transfer will be available.
• If it’s a UK pension it will be liable to IHT for everyone.
• If it’s a QROPS or QNUPS, those liable to IHT on worldwide assets will be caught and those liable to IHT only on UK situs assets will not be caught.

 QROPS and the Overseas Transfer Charge (OTC)

• Transfers to a QROPS in a third-party jurisdiction will now be subject to a 25% OTC on the transfer value.
• The exemption to OTC when the member lives in the EEA or Gibraltar has been removed with effect from Budget Day.
• It is not yet 100% clear if pipeline cases are excluded but the current assumption is they will also be caught by the OTC.
• This 25% charge is in addition to the 25% charge that applies on any excess over the Overseas Transfer Allowance (OTA i.e. any value in excess of the old Lifetime Allowance (LTA).

 Taxation reform for non-UK domiciled people

 Whilst this is obviously aimed at non domiciled persons, it seems to apply to UK domiciled people as well.

Income tax and capital gains tax

Those residing outside the UK for 10 consecutive tax years prior to arrival in the UK may claim relief on foreign income and gains for the first 4 tax years of UK residency.

• The income and gains may be remitted to the UK and remain non-taxable at point of remittance.

Inheritance Tax

In order to be liable to IHT on worldwide assets, an individual must have been UK resident for 10 of the previous 20 tax years, to be known as a Long-Term Resident (LTR)

• Non LTR’s pay IHT on UK situs assets only
• LTR’s pay IHT on worldwide assets

Excluded Property Trusts (EPT’s)

• Trusts settled after Budget Day will be Excluded Property for as long as the settlor(s) remain non LTR
• For trusts settled by non-UK domiciled persons prior to Budget Day, there appears to be some transitional provisions, in that the gift with reservation rules (GWR) may not apply

       Note

• Further investigation is needed to confirm this
• However, it seems certain that periodic and exit charges will still apply once the settlor(s) is LTR

 Capital Gains Tax

 As expected, CGT rates have been increased in many circumstances

• The 10% lowest rate rises to 18% and the higher rate of 20% rises to 24%
• This brings tax rates on most asset disposals in line with residential property rates which were already at 18% and 24%
• Rate applicable to trusts and personal representatives are still aligned with the higher rate, now 24%

  ♦The rate increase is with effect from Budget Day

  ♦The rate applicable to Business Asset Disposal Relief and Investors’ Relief is also increasing, initially from          10% to 14% from 6/4/25 and to 18% from 6/4/26

 Stamp Duty Land Tax

  The surcharge on seconds homes is increased from 3% to 5%

•  Add this to the 2% non-resident surcharge and the rate is 7%
•  Add on the standard SDLT rate and it is likely to be in double figures

 Employer National Insurance

As widely expected, the largest increase in tax comes by increasing the rate of NI employers pay on employee salaries

• As promised in the Labour Party Manifesto, there is no increase in the rate of NI employees pay on their own salary
• Currently employers pay 13.8% on salaries over £9,100
• This is increasing by 1.2%, to 15%, on salaries over £5,000
• For an employee earning exactly £9,100, this is an addition NI cost to the employer of £615 pa (£4,100 x 15%)
• For an employee earning £19,100, it is an increased cost of £735 pa

There are hundreds of pages of budget notes and draft legislation to work through, so initial assumptions have been made.  It is likely a few amendments to interpretation will come to light over the coming days. Also, some changes are out for consultation and debate in Parliament with detailed legislation to follow.

Contact Ife for more information, financial advice, wealth management and mortgages.

T: +44 (0) 28049 4423 

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