Budget News
Our budget summary
Labours first budget in 14 years made a number of significant changes. Inheritance tax on pensions. Increased capital gains tax rates. Changes to Business Asset Disposal Relief.
The Loss of Residence Nil Rate Band
As pensions have been added into scope for Inheritance tax, the addition of your pension may impact on your Inheritance tax allowances.
An individual has a Nil rate band allowance of £325,000 which is free of Inheritance tax. If you own your own home and that passes to a direct descendant then you may also benefit from the additional allowance of £175,000 called the Residence Nil Rate Band. This means that an individual can in many cases pass on £500,000 free of tax. As these allowances are transferrable between spouses that means that many couples can pass on £1,000,000.
If however, your estate is greater than £2m then you start to lose your Residence Nil Rate Band at a rate of £1 for every £2 over £2,000,000. In practice this means that for a couple, they have lost their joint £350,000 of allowance once their estate exceeds £2,700,000.
If adding your pension to your estate takes your estate over £2,000,000 then this change will add Ingeritance tax to your pension and it will reduce your tax free Residence Nil Rate Band.
Increases to Capital Gains Tax
Capital Gains Tax (CGT) increased dramatically as a result of the budget. Many investors are considering the most tax efficient way of holding those investments.
Given the scale of the increases and the dramatic effect upon your overall returns, you should consider a full asset review to see if you are tax optimising your assets and maximising returns.