What the Autumn Budget Means for You

Rachel Reeves’ first Budget as Chancellor had the rumour mill in overdrive based on the tax uplift required to fill a blackhole in the public finances. The biggest single tax change from the budget designed to address that blackhole was a 2% increase in the rate of employer NICs. Many of the rumoured changes, such as a return of the pension lifetime allowance, changes to pension tax relief, investment incentives for EIS & VCTs or a cap on pensions tax-free cash failed to materialise, which is good news for individuals saving for retirement. However, there were several major tax changes in her Autumn Budget, notably increasing capital gains tax (CGT) rates and altering inheritance tax (IHT) rules around pensions which may have a longer-term impact on wealth.

Capital Gains Tax Changes

With immediate effect, the lower rate of CGT will increase from 10% to 18%, while the higher rate will increase from 18% to 24%. This aligns capital gains taxation rates on investments to the same as those on properties (that are not exempt). However, the CGT allowance of £3,000 remains the same. As an example, if a higher rate taxpayer realised a gain of £20,000 in the 2025/26 tax year, they would pay £4,080 in CGT – that’s £680 more than if rates hadn’t risen.  A basic-rate taxpayer would pay £3,060, which is an increase of £1,360.

Allowances for ISAs & LISAs remain the same so now more than ever its important investments are ISA or LISA wrapped where possible to avoid future unnecessary taxation.

Inheritance Tax Changes

Pensions will now be subject to inheritance tax on death. Currently, pension assets are typically excluded from an individual’s estate for IHT purposes, meaning they can be passed on free of IHT upon death. From April 2027, any money left in your pension will be included in your estate for IHT calculations, which means it could be subject to up to 40% tax. Any pension inherited by your spouse or civil partner will however, be exempt. We understand on receipt of an inherited pension, the beneficiary would also need to pay tax at their marginal rate as funds are drawn if the pension was inherited from someone who died after age 75. Therefore, we need to be mindful of possible double taxation (IHT and income tax) and consider possible strategies to avoid this.

Currently, investors can pass on certain business assets to their beneficiaries free from IHT when they die. This is known as ‘business relief’ and it includes shares listed on the Alternative Investment Market (AIM), which is a stock market for smaller and typically riskier companies. From April 2026, AIM shares will be subject to IHT of 20%. Other business relief-qualifying assets will be IHT-free up to a maximum of £1 million, but assets above this will be subject to IHT of 20%. This will include inheritance tax products that use unlisted companies.

Extending the freeze on the IHT nil-rate band

The chancellor announced that the freeze on the IHT nil-rate band – the amount you can pass on to your beneficiaries free from IHT when you die – will be extended for another two years. The nil-rate band was frozen by the previous Conservative government in 2022 but was due to start rising again from 2028. Today’s announcement means the IHT nil-rate band will remain at £325,000 until April 2030. Married couples and civil partners can transfer any unused element of their IHT nil-rate band to their living partner when they die, which means a couple effectively has a joint nil-rate band of £650,000.

There is also an additional ‘residence nil-rate band’, which is up to £175,000 (depending on the total estate value). This is also being frozen for a further two years to 2030. The residence nil-rate band applies to those leaving property to direct descendants. Again, this can be transferred to the surviving spouse or civil partner, meaning a couple has a joint residence nil-rate band of £350,000 (this reduces for estates worth more than £2 million). Overall, a couple could potentially pass on up to £1 million before IHT becomes due.

Pension Changes

There were rumours that the chancellor would limit the amount of tax-free cash you can take from your pension in retirement to £100,000. This did not happen, which means you can continue to take up to 25% of your pension as tax-free cash, capped at £268,275 over your lifetime. It was also rumoured that the chancellor would introduce a flat rate of pension tax relief. Again, this did not come to fruition, which means basic-rate, higher-rate and additional-rate taxpayers will continue to receive tax relief of 20%, 40% and 45%, respectively, on personal pension contributions.

Other Changes

The chancellor announced that the rate of employer national insurance (NI) will increase from 13.8% to 15% from April 2025. Employers will start paying NI when an employee’s salary hits £5,000 – down from £9,100 currently. While the move won’t affect clients directly, employers may reduce pay rises or benefits such as pensions. If you have a workplace pension, it’s worth checking whether your employer will change how much they pay into your pension as a result of the changes.

There was some speculation that the freeze on income tax thresholds will be extended to 2030, but this did not happen. Instead, the chancellor said income tax thresholds will start rising again from 2028 in line with inflation. The thresholds were frozen by the previous Conservative government in 2022. While the announcement is welcome news, the freeze isn’t over yet, so we are likely to see more people being pulled into paying taxes at a higher rate.  Taking advantage of tax-efficient pensions and ISAs, where appropriate, is one way of managing frozen tax thresholds. The current tax year ends in just over five months on 5 April 2025, which is the deadline to invest this year’s ISA and pension allowances to shelter your investments from tax on income and profits.

Actions to Consider in the Future

In light of the changes to tax rates and reliefs, it will be important to consider how these will impact your longer-term strategy and plan. Whilst we fell the budget could have been worse, there are still a number of changes that may impact wealth in the future and therefore, it is important these changes are considered and how they relate to you. We will naturally be picking up all these changes with our clients in our next review meeting, however, if you would like to discuss any of the changes in advance, please do not hesitate in contacting us.

As an overview, you can download our Autumn Budget communication covering all areas of the budget.