Adjusting your plans in light of Reeves’ moves

It is now a month since the Autumn Budget was unveiled by Chancellor Rachel Reeves, and commentators have had a chance to fully digest its lengthy contents and the impact of the changes.

An area that is causing a lot of consternation, with farmers taking to the streets, is the decision that the full 100 per cent relief from inheritance tax (IHT) will be restricted to the first £1 million of combined agricultural and business property from 6 April 2026. Above this amount, landowners will pay IHT at a reduced rate of 20 per cent.

NFU Scotland’s board of directors joined fellow farming union delegates from the rest of the UK in a mass lobby at Westminster earlier this month demanding the UK Government reverse this.

Martin Kennedy, NFU Scotland president, said: “Inheritance tax reliefs give certainty to family farms that they will be able to keep the farm in the family and keep producing food for the nation. Without this, the family will often have little alternative but to sell the farm, or part of the farm, to pay taxes.”

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Niall Duffy, independent financial adviser at Aberdein Considine, described the change to IHT for the agricultural sector as a surprise. He adds: “There’s been lots of subsequent debate about just how big a portion of the farming community will be affected by these new rules. However, there are some important existing caveats for agricultural property relief which still apply and these could determine whether a farmer’s estate is impacted. And even in cases where it looks likely that a farm will be liable for IHT, there are mechanisms where the tax relief can be stretched further.”

It is not just the Budget changes to IHT for farmers that have caused concern, there have also been issues raised about pensions.

Tom Munro, financial planner with McHardy Private Wealth, says: “A major change to be implemented on 6 April 2027 is IHT on inherited pension funds. Although both financial planners, and providers, have time to fully consider these changes, some planning can be implemented sooner.

“The big change here is the potential ‘double taxation’ for deaths over 75, so where clients have deferred taking tax-free cash from their pension beyond the age of 75, this should now be reviewed to ensure inherited funds are only subject to IHT on death and not IHT and income tax.

“Staying with pensions, where clients have left pension funds untouched –mainly for estate planning purposes – this should also be reviewed, and this is particularly important where clients are over 75.

“For younger individuals, where pension funds are not required, taking the tax-free cash and making gifts, either direct or by trust arrangement, will now be a much more attractive option than leaving them in the less tax-efficient pension pot.

“Finally, review all death benefit nominations as leaving funds to a spouse may offer more opportunities to remove the funds from the estate before second death.”

On bringing pensions into IHT, Duffy says: “This is a significant shake-up of people’s financial plans. Over the past few years the trend has been to spend all non-pension assets, such as savings and ISAs, first before drawing down from your pension fund, which is often used as an IHT planning vehicle. But this announcement could see a shift in behaviour with people potentially looking to draw more of their income from pensions, possibly now with the view to gifting this to family as part of estate planning.

“Given the significance of this announcement, we expect to see an upsurge in people looking for advice in this area over the next couple of years. Retirement and financial plans made over recent months and years may need to be re-drawn. Those already in retirement and drawing down from their other assets will be especially keen to seek advice on, if, and how to adjust their strategy.”

Kevin Brown, savings specialist at Scottish Friendly, says: “In one fell swoop, the changes to Capital Gains Tax [CGT], where CGT on shares has increased from 10 per cent to 18 cent for those at the lower rate and from 20 per cent to 24 per cent for those at the higher rate, made stocks and shares ISAs and JISAs look very attractive indeed.

“They already provided a popular and accessible way for UK households to grow nest eggs tax-efficiently, even before the Chancellor commended her first Budget to the House. By the time she had sat down, the shield ISAs and JISAs offer your investments from CGT was looking even more appealing.

“Putting aside even just a little money each month can build a solid financial buffer for whatever life throws at us. Doing so tax-efficiently can help to ensure your hard-earned money works equally hard for you in return.”

Andy Bolden, financial planning director at 7IM, says moves on CGT were less than many had feared, and have been generally accepted by most clients, with the exception of business owners. He explains that they broadly feel that the Budget was not pro-growth – quite the opposite in most cases – and an attack on entrepreneurialism, risking the break-up of many family businesses and farming enterprises.

Bolden adds: “Changes to IHT and the treatment of pensions has raised anger around the potential for double, or triple taxation of pension assets upon death. The delay in implementation to 2027 suggests there is much to consider and consult on as to how this can be made to work in practice. Affected clients are already changing their plans and I expect to see a significant resurgence of annuities, along with targeted gifting of other assets.”

Marie Calvin, regional director for Scotland at national financial planning firm Finli, believes that one key thing for clients to bear in mind is the need for a clear understanding of the implementation dates that may impact personal financial plans.

She explains: “Some changes came into effect immediately, some in the first half of next year, others not until 2027 and, whilst the measures in the Budget are perhaps not as dramatic as initially feared, there is some good news in that some of the rumoured changes, most feared by clients, were not implemented.

“On CGT, the Chancellor stopped short of proposals to equalise rates with income tax. However, with some of the changes that came into immediate effect, these have put into sharp focus the old mantra of ‘use it, or lose it’ when it comes to exemption limits. Ensuring that clients are investing as tax-efficiently as possible in wrappers, which protect from these increases in CGT tax rates, will be a key consideration.”

Calvin adds: “For clients, it is important to consider the impact of the changes thoughtfully, and ensure that they are finding the best place to hold assets, and how to maximise the use of annual exemptions and allowances wherever possible. This is where financial planners will come into their own – to support clients as they navigate through the impact of these changes – and it will no doubt be a key topic of conversation with all clients in the coming months and years.”

Looking ahead to the Scottish Budget to be unveiled at Holyrood on 4 December, Bolden says: “A significant cash boost will arrive through the Barnett formula and, with the UK Budget impacting significantly upon Scottish businesses as well, the SNP will find it hard to advance their ‘progressive taxation’ agenda still further.”

He adds that people should “look for easing of fiscal drag around lower-income level tax bands”.

The Scottish Retail Consortium (SRC) has made its recommendations to Holyrood. David Lonsdale, director at the SRC, says: “The Scottish Budget provides a great opportunity to bolster growth by stimulating consumer confidence and business competitiveness, reduce the cost of government, and deliver greater fiscal certainty.”

On supporting consumers, the SRC states that household finances continue to be under strain. It adds: “Falling shop price inflation and growing real wages have yet to translate into sustained increases in retail sales or shopper footfall… We caution against any additional policies which might cast a cloud over what remains a tentative recovery in consumer confidence.”