In Focus: Tax planning  

Everything advisers need to know about Reeves' historic Budget

  • Describe the main policies announced by the chancellor
  • Identify what impact the Budget will have on taxpayers
  • Communicate how the government's policies could impact financial planning
CPD
Approx.30min
Everything advisers need to know about Reeves' historic Budget
(ADRIAN DENNIS/AFP)

Rachel Reeves' first Budget as chancellor, and the first of any female chancellor in this country, was expected to ruffle some feathers.

After all, it was Labour's first Budget in 14 years and the party has been busy warning the public of "difficult" decisions ahead as it sought to right what it deemed had been the mistakes of the governments of the past.

It was a long Budget speech to be sure in which many measures were announced, some more lenient while others made the former Bank of England economist's audience gasp.

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Reeves' main ambition, as laid out at the despatch box, was to “restore stability to our economy and begin a decade of national renewal”.

Labour had promised in the run up to the Budget, and indeed the last general Election, that it would not raise taxes on "working people", so what did Reeves announce, and who will it affect?

Taxing pensions

Advisers may have a job on their hands as the chancellor announced she was bringing pensions under the inheritance tax regime from 2027.

Reeves said she was intent on closing a loophole created by the pension freedoms and made worse by the previous government's decision to abolish the lifetime allowance.

The move will mean the value of pension pots will be added to the total value of other assets in the estate and if over the IHT threshold of £325,000, which has been frozen until 2030, it will be taxed in the same way.

Experts have warned this will have a big impact on estate planning, especially for those with larger estates and pension pots.

Mike Ambery, retirement savings director at Standard Life, part of Phoenix Group, said: "This represents a fundamental shift to how wealthier individuals think about accessing their money in retirement.

"At present it makes more sense to access Isas and other forms of saving before touching pensions. In time we’re likely to see more pensions accessed earlier to prevent them from becoming part of people’s IHT bill at a later date."

Jamie Jenkins, director of Policy at Royal London, said: “While most people will still benefit from their estate falling under the limits for inheritance tax, many people will have planned their retirement with a different understanding of how their wealth would be taxed and may have started taking income on this basis.

“Many advisers will now need to contact their clients and may need to rethink their approach to estate planning and income withdrawals. Helpfully, the changes don't take effect until April 2027."

There had been speculation that the chancellor could make more drastic reforms to pensions such as changing the tax free lump sum or charging NICs on employer contributions.

The PMI's director of policy and external affairs Tim Middleton said he was glad to see this did not materialise.

"We are both relieved and delighted that even in such difficult economic circumstances the importance of our workplace pension system has been recognised and respected," he said.