Do you need to pivot your financial planning post Budget?

After being warned by the Prime Minister that it would be “painful” and there’d be tough times ahead, the country held its breath for the Autumn Budget 2024. And rightly so, because Chancellor Rachel Reeves unveiled a series of significant changes that reshaped the financial landscape for investors and savers across the board.

Whether you're a seasoned investor or just starting to build your nest egg, these changes could potentially mean a fresh approach to your financial strategy.  So, let's dive into the details and unpack what the Autumn Budget 2024 means for you and your money.

Capital Gains Tax: A steeper hill to climb

The immediate increase in Capital Gains Tax (CGT) rates was perhaps the most striking change for investors. Basic rate taxpayers will now face an 18% rate, up from 10%, while higher and additional rate taxpayers will see their rate jump to 24% from 20%.

This hike highlights the importance of tax-efficient investment vehicles such as Individual Savings Accounts (ISAs) and pensions, which have become even more valuable, as they allow your investments to grow free from CGT. If you're not maximising these tax-efficient wrappers, now is the time to consider doing so.

Inheritance Tax: The frozen threshold

The Inheritance Tax (IHT) threshold freeze until 2030 is a classic case of 'fiscal drag' – this is when inflation or income growth pushes taxpayers into higher tax brackets, resulting in them paying a larger portion of their income in taxes without an actual increase in tax rates. While the threshold remains at £325,000 (or up to £500,000 if leaving a residence to direct descendants), rising asset values mean more estates will likely be pulled into the IHT net over time.

For business owners, farmers, and landowners, the changes are more complex. The first £1 million of combined Business and Agricultural assets will remain IHT-free, but relief drops to 50% above this amount. This could significantly impact succession planning for family businesses and farms.

Pensions: A shift in death benefits

The most substantial change in the pensions landscape is the inclusion of inherited pensions in IHT from April 2027. This represents a fundamental shift in pension planning strategy. It may even require a complete income strategy U-turn through retirement, so it’s really important to seek financial advice.

Pension assets are now much more likely to be used before ISA and Unit Trust investments, which hasn’t been the case for the last 10 years when the reverse was true.

It is may be a body blow if you have worked hard throughout your lifetime to build substantial pension investments… but with the right financial advice, there are always options.

Property and business considerations

The increase in Stamp Duty Land Tax for second homes from 3% to 5% will impact you if you’re considering property as an investment. This change, effective immediately, could alter the financial calculations if you’re a buy-to-let investor or exploring the idea of a holiday home.

For business owners, the rise in employer National Insurance Contributions to 15% from April 2025, coupled with a lower threshold, will increase the cost of employment. While the smallest businesses are protected, this change could influence hiring decisions and salary structures for many companies.

What could this mean for you?

The Autumn Budget 2024 brought a mixed bag of changes that will affect different people in various ways. Here are some key takeaways:

1. Review your investment strategy: With higher CGT rates, tax-efficient investing is more crucial than ever.
2. Reassess your estate planning: The IHT changes, especially regarding pensions, may require an overhaul of any wealth transfer plans you may have.
3. Consider your pension strategy: The new IHT rules on pensions mean you might need to rethink how you use your pension pot, both in retirement and as part of your estate planning.
4. Evaluate property investments: The increased stamp duty on second homes may reduce the appeal of property as an investment.
5. Get professional advice: These changes are complex and far-reaching. A financial planner can help you navigate this new landscape and make the best decisions for you and your finances.

While the initial market reaction to the budget was muted, the long-term implications of these changes are significant.

As we approach the implementation dates for various measures, it's key to stay informed and proactive in your financial planning. Remember, financial planning is a personal journey. What works for one person may not be suitable for another. In light of these changes, now is an excellent time to review your financial plans and ensure they still align with your goals and the new fiscal reality we find ourselves in.

If you want help to understand what the Autumn Budget 2024 means for you and your finances, or to navigate the best way forward, please get in touch to arrange a no-obligation consultation.      

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation and reliefs from taxation can change at any time.  Tax relief is dependent on individual circumstances.