We hope you are keeping well.
Following yesterday’s budget, we thought it would be useful to send you details of the highlights.
We are still awaiting more information and the finer details to be announced, and this could take weeks if not years on some policies. The change in policy on Pensions being included in the estate for Inheritance tax with effect from 2027 is under consultation and will be conducted throughout 2025.
Income tax
The personal allowance will remain at £12,570, and this is frozen until 2028.
The rates for the UK (excluding Scotland) will remain at:
• Basic tax rate 20% on first £37,700 over the personal allowance.
• Higher rate 40% on earnings over £37,700 plus personal allowance.
• Additional rate 45% on earnings over £125,140.
The rates of income tax for Scottish taxpayers will be announced in the Scottish Government’s budget in December.
The freeze in the personal allowance could push many pensioners into the basic rate tax bracket. State pension is not taxed at source so, this could lead to many pensioners receiving an unexpected tax bill!
National Insurance
Employee National Insurance
As with income tax, Labour stated in their manifesto they wouldn’t increase employee National Insurance contributions. From 6 April 2025, employee National Insurance will remain at:
• Class 1 National Insurance contributions employees will pay 8% on their earnings between the primary threshold and the upper earnings limit; between £12,570 and £50,270.
• Class 1 National Insurance contributions employees pay 2%, on their earnings above the National Insurance contributions upper earnings limit.
Employer National Insurance
Class 1A and 1B employer National Insurance contributions from 6 April 2025 will be increased from 13.8% to 15.0% on earnings over £5,000.
The Secondary Threshold, from which employer contributions start to be paid, will reduce from £9,100 a year to £5,000 a year.
The Employment Allowance, which allows employers who pay less than £100,000 in National Insurance contributions to reduce their National Insurance bill, will increase from £5,000 to £10,500 from 6 April 2025.
Pensions
Pension death benefits – Inheritance tax on pensions
There is normally no inheritance tax on death benefits if the choice of beneficiary is the scheme administrator’s, using their powers of discretion. From 6 April 2027, inherited pension death benefits will be subject to inheritance tax regardless of who chooses the beneficiaries. The Government will consult on the processes needed to implement these changes.
In the details of the full budget report this is stated as a consultation with a view to implementation from 2027. We will be watching closely for the outcome of this and update our clients when we have more information.
State pensions
The Government is keeping the triple lock. The Basic State Pension, new State Pension and Pension Credit standard minimum guarantee will be uprated in April 2025 by 4.1%, in line with earnings growth in September 2024.
• The new State Pension will rise by £474.85 to £12,016.75 a year.
• The Basic State pension will rise by £361.40 to £9,175.40 a year.
Overseas transfers
Reducing tax-free overseas transfers of tax relieved UK pensions
The overseas transfer charge is a 25% tax charge which arises on transfers to Qualifying Recognised Overseas Pension Scheme (QROPS) unless certain exemptions apply. The exemption for transfers to a QROPS established in the European Economic Area (EEA) and Gibraltar will no longer apply for transfers made on or after 30 October 2024.
From 6 April 2025, the Government also announced that the conditions of Overseas Pension Schemes (OPS) and Recognised Overseas Pension Schemes (ROPS) established in the EEA will be brought in line with OPS and ROPS established in the rest of the world, so that:
• OPS established in the EEA must be regulated by a regulator of pension schemes in that country.
• ROPS established in the EEA must be established in a country or territory with which the UK has a double taxation agreement providing for the exchange of information, or a Tax Information Exchange Agreement.
Scheme administrators
The Government announced, from 6 April 2026, scheme administrators of registered pension schemes must be UK resident.
Savings
Individual savings account
Subscription limits remain the same from 6 April 2025 so are:
• Adult ISA annual subscription – £20,000
• Child Trust fund – £9,000
• Junior ISA – £9,000
• Lifetime ISA – £4,000
British ISA
It was announced that the Government will not be moving forward with the British ISA due to mixed responses to the consultation launched in March 2024.
Inheritance tax
The nil rate band (£325,000) and the residential nil rate band (£175,000) will remain frozen until April 2030.
From 6 April 2026, an individual will be able to leave combined business and agricultural assets to their loved ones of £1million without an Inheritance tax liability, with any excess being taxed at 20%.
From 6 April 2025, the domicile-based system for inheritance tax will be replaced by a residency-based system.
Trusts
Reforming the taxation of non-UK individuals
Under current rules, if the settlor is a beneficiary under a trust which was executed whilst non-domiciled returns to the UK, the trust is protected. From April 2025, that protection will no longer be available and if the individual is a settlor and resident in the UK for 10 years the trust will be caught.
Capital Gains Tax
The chancellor announced that the rate of capital gains tax (CGT) will increase from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher-rate taxpayers. The changes are effective immediately.
Today’s announcement could make bed and ISA and bed and pension strategies even more valuable.
However, investors will need to balance the risk of any possible tax changes with the risk of being out of the market for longer than initially planned and missing out on potential further gains.
This brings the rates in line with the rates for residential property.
If you have any questions, queries or concerns following the budget please feel free to contact us via admin@bdfinancial.co.uk.
All the best
From the Blake and Day Team.
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