UK Government: 2024 Autumn Budget Explained

I wanted to take the time to drill down and share some insights on the latest announcements that will be affecting the UK Institutional space. With the current climate the UK finds itself in, Labours first budget comes into the spotlight riding high on expectation but little on immediate details.

Reforming the UK IHT system to include unspent pension pots within the tax regimes scope.

The Labour government has announced plans to close holes which allows for pensions pots to be used as a tax relief system on Inheritance Tax (IHT) by bringing the bringing unspent pots into the scope of IHT from April 2027 which will affect around 8% of estates (while this figure might look small, these pots represent the higher end of pot size as a percentile). This new regime is to impact both DB and DC schemes.

At present you can be paid a lump sum of £1.07m to named beneficiaries tax-free (IHT), by 2027 this will change to a £325,000 of the total estate (this included not just pension funds but savings, property and other assets) that would have an IHT tax-free allowance, with an additional allowance of £175,000 for direct descendants (brining the maximum total estate allowance to £500k).

An example would be you have £100,000 in savings, £400,000 in property and £100,000 in a DC pot, brining a total estate of £600,000. Currently there is no IHT payable on this amount but as of 2027 £40,000 would be payable as IHT. It is estimated around 10,500 pension pots will be immediately impacted in the year 2027 to 2028 being brought into the IHT scope regime with an additional 38,500 already being in the scope facing a higher tax burden on any legacy piece left behind (The current IHT liability for this group is £169,000 which is expected to increase by £34,000).  

This will affect the attractiveness of a legacy piece on members post-retirement journey and affect the prospects of an increased number of people opting for high drawdowns at retirement.

Freezing the starting rate for savings

The starting rate for savings will remain at £5,000 for 2025-26 which will allow individuals with less than £17,570 in employment or pension income to receive up to £5,000 of savings tax-free.

Mineworkers’ Pension Scheme

The government will transfer the investment reserve fund in the scheme to the schemes trustees. This is DB scheme with £10.5bn in assets as of Q4 2024.

Increased private asset involvement in a new SWF

Increased work with the private sector through the creation of the ‘National Wealth Fund’ as a catalyst for over £70bn of private investment assets.

Push to UK growth assets

The government has also launch efforts into encouraging more investments from pension funds UK growth assets, while not specific it is thought this is to include private pensions as well as LGPS.

Source:

AUTUMN BUDGET 2024: FIXING THE FOUNDATIONS TO DELIVER CHANGE

https://assets.publishing.service.gov.uk/media/672b98bb40f7da695c921c61/Autumn_Budget_2024_Print.pdf

(30 October 2024)