Connor Read: Hi everyone, I’m here with Chris Green, the Head of Financial Planning here at City Asset Management. We had the recent budget from Rachel Reeves, and we thought we’d just talk about a few points from this.

So, the first topic I thought we’d talk about would be around pensions and inheritance tax. So, there are some big changes to pensions, Chris. What were the biggest ones that were announced?

Chris Green: Well, certainly before the budget, there was plenty of speculation and panic, dare we say it, amongst a lot of the public. The insurance companies reported that people were taking tax-free cash from pensions at enormous levels in fear that there were going to be changes, but I think we can be quite comfortable that we have a period of stability.

There was a lot of representation from the industry that we didn’t want to see changes to pensions, and certainly, we’ve got some stability with the annual allowance being unchanged, the lifetime allowance has remained where it was, and the lump sum allowance is unaffected.

So, no change to tax-free cash, and no changes to tax relief on pensions, which was another one that was highly speculated. I think the big one, and some of us were probably expecting this, it’s fair to say, is that pensions are going to be moved back into IHT scope from April 2027, ending what Labour have called a loophole instigated by the Tories. So that’s really the big one.

Connor Read: Yes, it’s definitely been on everyone’s minds. So, you mentioned there was a lot that hasn’t changed, which is probably quite good news. So, the question now is, are there probably still good reasons to invest in a pension?

Chris Green:  Yes, I mean we’re almost back where we were in 2015. Pensions were always there as a tool for saving long term and for producing retirement income. So, that’s what they’re still good for. You’ve still got tax relief on your contributions, no changes to that, so if you’re a higher or additional rate taxpayer you get full tax relief on your contributions going in. Pensions remain tax-sheltered on their investments and their growth so, again, they’re really good for long-term investments; it just forms part of the planning package, you know. The key thing is going to come in how we plan around using pensions for people in retirement – so back to how we were about ten years ago, really.

Connor Read: And so, in terms of the inheritance tax changes with pensions, is there any planning that we need to do right now?

Chris Green: So, I think the key thing is that these changes don’t come in until 2027. The initial look at how it’s all going to work looks very messy. They’ve given us plenty of time; there’s going to be consultation between now and 2027 between the industry and HMRC on how it’s going to work. I think the industry would like to see a flat charge applied to pensions, rather than going through all of the administration mechanics of IHT and including pensions in there. So, there’s a lot to be sorted out between now and then, but certainly in terms of how we’re going to plan this with our clients – yes, it’s going to be important to start talking about that sooner rather than later.

Connor Read: So, 2027 – yes, it seems far away, but actually time flies and it’s really not that far away. So I think the key thing is to start these conversations now.

Chris Green: Yes, it sounds like we have a little time, but probably sooner rather than later. Absolutely.

Connor Read: And in terms of other changes in the budget, there were a few other points that impact inheritance tax. Probably the biggest one was business relief and AIM investments. So, would you like to just talk us through what happened there?

Chris Green: Yeah. So, the key headline was effectively you’ve got a £1,000,000 allowance now for business assets and agricultural assets, so a combined £1,000,000 allowance, and then 50% relief on anything over and above that.

AIM—there was a lot of speculation as to what might happen to investing in AIM. AIM still retains an exemption but it’s halved. So, effectively, your AIM assets will attract inheritance tax of 20% rather than 40%. That 100% relief that you once had, you won’t have any more; and again, that’s coming in fairly soon. So, yes, it’s going to be really important to consider that, to look at what that means in terms of inheritance tax, people’s estates, and to see what can and can’t be done around that. But yeah, a lot of these things are still subject to ratification, so there could still be changes – who knows.

Connor Read: Yes, there’s still a sense of “watch this space”, but with the changes to business relief and the changes to pensions, the nil rate band has been frozen again now for about 15 years since 2009. It feels like people are paying more inheritance tax every year, and that’s set to continue. So, are there any ideas left on how we can mitigate inheritance tax?

Chris Green: Yes, so other than the changes we’ve highlighted—the changes to business asset relief and the relief on AIM—the other planning opportunities haven’t changed. There was no change to gifting. Again, there was a lot of speculation that Labour might introduce a sort of a lifetime allowance on gifting, but there are no changes to gifting. So, you can still make capital gifts of any amount to any person as a potentially exempt transfer, and as long as you live seven years, it falls out of your estate. There are no changes to gifting out of surplus income, so if you’ve got surplus income, you can give that away on a regular basis, and that’s still exempt. Again, there was some speculation that Labour might clamp down on that, but that’s still there. So, there are still plenty of opportunities to plan around inheritance tax—gifting, direct gifting to trusts, surplus income gifting. It’s just really important to think about what your needs are as an individual first and then plan around that for any surpluses to try and mitigate inheritance tax. So, there’s still planning to be done.

Connor Read: Sounds fairly positive despite the big changes, so that’s good to hear. Thank you, Chris, and thank you everyone for listening.