‘Tamer than expected’: councilors react to budget

Consultants responded to yesterday’s budget by saying that while it was more subdued than expected, they expected it to have a major impact on estate planning and be painful for investors and businesses.

Announcements released yesterday by Chancellor Rachel Reeves include rate hikes capital gains tax up to 24 percent, increase to stamp duty, land tax up to 5 percent and defrosting national and income tax thresholds.

The government said it was also making it impossible for people to use pensions as a means of planning for inheritance tax by transferring unspent pots to the budget. inheritance tax amount from April 2027, which is expected to affect about 8 percent of estates each year.

Pensions and INT

The inclusion of pensions in inheritance tax from April 2027 means the proportion of estates subject to IHT will rise from the current 6 per cent, the government has said.

Gary Smith, partner financial planner and pensions specialist at asset management firm Evelyn Partners, said that with defined contribution pension funds now subject to up to 40 per cent IHT on death, he expected to see more withdrawals from pension pots .

Smith added: “Pensions have been one of the most tax-efficient investments available to savers, with tax relief on personal contributions, tax-free growth and pension funds remaining outside your estate for IHT on death.

“This means that some retirees are prioritizing using other savings and assets to fund retirement before drawing on pensions. Retirees and savers have 18 months to reconsider their long-term plans.

“Pension withdrawals are subject to income tax, so some drawdown savers will be looking at a frozen threshold of £50,270, after which their total income from all sources will be taxed at 40 per cent.”

Speaking about the budget, Philip Dragoumis, director and owner of Thera Wealth Management, said: “However, the devil is in the details. If you’ve read and believed the Telegraph over the last month or so, Labor were going to introduce communism.” taking our property… and our firstborn.

“This budget turned out to be much more modest than expected. CGT has not been raised to income tax levels and there have been no changes to tax-free pensions, lifetime allowances or annuities.

“There have been some welcome interventions into IHT loopholes to help businesses, but there is still a zero rate allowance for investments up to £1 million. IHT on pensions will change how funds are planned, but this was inevitable. In general, quite happy, considering the circumstances.”

CGT hike

The Budget will also increase the lower CGT rate from 10 percent to 18 percent and the higher rate from 20 percent to 24 percent.

Although the CGT rise was not as high as feared, Anita Wright, independent financial adviser at Bolton James, said it would have a significant impact on investors as investors would retain less of their profits when selling assessed assets.

“For example, a profit of £10,000 previously taxed at 10 per cent would attract £1,000 in CGT; at the new rate of 18 per cent, the tax due would rise to £1,800,” Wright added.

“This reduces net income and reduces effective return on investment, which can impact the attractiveness of capital growth-oriented investments.

“For both basic and higher rate taxpayers, rising CGT rates could slow the rate of wealth creation as investors have less profits to reinvest.”

Employers’ NI is painful for small businesses

One of the main pain points in the budget was the increase in employers’ national insurance contributions.

Daniel Wiltshire, actuary and IFA at Wiltshire Wealth, said: “Compared to the frankly hysterical headlines of the last few weeks, this budget was a piece of cake.

“Okay, there is an increase in CGT, but the rate was at historic lows and there is reason to believe that the tax rate on capital relative to labor has become too broad.

“The rise of NI employers will be more painful, especially for small businesses, but there is a feeling among those I’ve spoken to that it could be a lot worse.”

Scott Gallagher, chartered financial planner and director at Rowley Turton, added: “Investors will be disappointed to see CGT rates rise to property levels.”

CGT rates for business asset disposal assistance and investor relief will also gradually increase to 14 per cent from 6 April 2025 and match the underlying lower rate of 18 per cent from 6 April 2026 to give business owners time to adjust to the changes.

Gallagher said entrepreneurs would be very upset if the business asset disposal allowance rises to 18 percent in the next couple of years, adding that it could lead to early exits for a number of small business owners.

The government will also reform agricultural property and commercial property exemptions from April 2026.

In addition to the existing nil rates and reliefs, the 100 per cent rate of relief will remain for the first £1 million of combined agricultural and commercial assets, and will then be 50 per cent.

The Government will also reduce the business property relief rate to 50 per cent in all circumstances for shares designated as ‘unlisted’ on the markets of a recognized stock exchange such as AIM. This will affect about 0.3 percent of estates each year.

Gallagher said the government’s plans could have serious implications for long-term business continuity and the preservation of generational wealth.

He added: “The decision to limit AGR and BPR may be understandable, but clarity is needed as to whether this change will apply to all private businesses.

“If family businesses lose their current inheritance tax benefits, we risk returning to the dark days of ‘death duties’, when the need to pay taxpayers often forced family businesses to break up or be sold.”