Great swathes of industry reaction continues to the hefty raising and spend UK Budget delivered by government chancellor Rachel Reeves yesterday (30 October). 

Among further commentary on the overseas transfer charge rules change, Rachel Vahey, head of public policy at AJ Bell, said: “The abolition of the lifetime allowance rules back in April created an interesting situation where pension savers could double dip on their pension allowances by transferring overseas.

“Those with large pension funds could leave £1,073,100 in their UK scheme and transfer any excess to a qualifying overseas pension scheme. They then could take their maximum tax-free lump sum of £268,275 from their UK scheme, as well as any tax-free cash entitlement from their overseas scheme.

“HMRC has now closed this loophole, but in the process may have caused pension currency chaos for overseas retirees.

“It has removed the exclusion that the overseas transfer charge (OTC) will not apply if someone transfers to a QROPS in the EEA or Gibraltar, even though they were not resident in the same country.

“One consequence is those who want to retire overseas, but where there are no QROPS registered in their new country of residence, will be forced to keep their pension scheme in the UK or face a 25% charge on transfer.

“As overseas residents may struggle to hold a UK bank account, and many UK pension schemes won’t pay to non-UK bank accounts, this could leave these overseas retirees in a difficult position. Even where they can hold an account, they still face a harsh choice whether to juggle currency risks when taking pension income or lose 25% of their pension wealth on transfer.”

For more reaction to the OTC rule changes, pick up on our yesterday's breaking news coverage of this international pensions issue here.

John Chew, tax and estate planning specialist, Canada Life, commented on  bringing pensions into the scope of inheritance tax from the Budget: “This year, around 5% of households will be subject to inheritance tax. As a result of the changes announced in today’s budget, this figure is expected to almost double by 2030.

“The move to bring pensions into the scope of inheritance tax means that, going forward, IHT will not only be a tax that is paid by the wealthy. For example, pre-budget, beneficiaries of someone with assets worth £300,000 and a pension pot of £107,300 (the average pension pot for a 55- to 64-year-old, according to the Office for National Statistics), would not have been subject to pay inheritance tax. Now however, they will be looking at a bill of just under £33,000.

“There are still plenty of options to consider but it’s important to start thinking about estate planning sooner rather than later. For example, the seven-year gifting rule, meaning financial gifts can be passed on tax-free as long as you live for seven years after you’ve gifted them.

"Trusts are another means that can be considered as part of the estate planning process. Ultimately, if you have planned to use some or all of your pension as part of your inheritance, consider seeking professional advice to understand what this might mean for you and your family.”

As for the new tax on AIM shares, Ian Woolley, head of AIM Services, Hawksmoor Investment Management, said: “It’s welcome that the government has reconfirmed that AIM shares will continue to benefit from Business Property Relief – albeit at a reduced rate of relief. Most importantly, this clears the cloud of uncertainty that had hung around the market since the election.

“We must however view this change in the broader context of the Budget. With pensions falling within the scope of IHT, for instance, far more estates will be subject to the tax on death. The IHT benefit afforded to eligible AIM shares will continue to be a valuable estate planning tool for professional advisers.

“Fundamentally though, we believe AIM is home to some world-class companies that make excellent long-term investments – besides any preferential tax treatment. This is a collection of high-quality companies with sound financial health and strong growth prospects.”

On non-doms, Alexandra Loydon, director – Partner Engagement and Consultancy said: “The Government’s decisions to abolish the non dom status and end excluded property trusts in today’s Budget may very well mark the end of HNW individuals settling long term in the UK, which could have an impact on the UK's high end property market.

"With today’s announcements being especially detailed, we strongly encourage those who think that they may be affected, to seek advice and guidance ahead of the published changes being implemented in April of next year.”

On a macro overview for the UK economy, Vivek Paul, UK chief investment strategist, BlackRock Investment Institute, said: "Bottom line: The goal of today’s autumn budget was to create room for public spending that can help boost the UK’s lacklustre economic growth – while avoiding a repeat of the bond market fallout from two years ago.

"Among the budgets costed by the Office for Budget Responsibility (OBR), this one represented the biggest fiscal loosening since 2010, excluding the pandemic period. Yet the plethora of policies leaked to the media, the foreshadowing of the change to fiscal rules at the IMF meetings and the prominent interaction with the OBR appears to have broadly had the desired effect on markets for now, with the reaction in gilt yields a far cry from the 2022 episode.

"Today's measures, including the change in fiscal rules, are an attempt to turn around the UK's economic fortunes. The UK economy has been struggling to grow since the pandemic. It has expanded by just 0.6% on average each year since the end of 2019, compared with 0.9% and 2.3% for the euro area and the U.S., respectively.

"But because the UK's debt-to-GDP ratio has risen from 86% to 105% over the same period, it was essential that not only were today’s reforms seen as growth-friendly, but that they were delivered in a manner that the markets deemed credible to avoid the risk of gilt yields spiking higher as they did after the autumn 2022 budget.

"By creating fiscal headroom but not using it all at once, the Chancellor is trying to signal to markets that there is a runway to support growth further, but that this will be used judiciously.

"The relative stability in bond risk premia is something the government will hope permeates into the stock market, too, reinvigorating foreign investment flows. Over the last 20 years, markets have gone from perceiving UK equities to be broadly as risky as their U.S. counterparts to materially more so now, when accounting for the different types of stocks in each index.

"We believe the market will reduce the risk premia on UK assets and see yields falling over time - and broadly position our short-term tactical views for this. The relative political stability afforded by the summer's decisive election result and our view that the Bank of England is likely to cut rates more than markets currently think means we stay overweight UK equities and UK gilts."

Emily Deane TEP, technical counsel and head of government affairs at STEP, the global membership body for inheritance advisors gave her initial response today (31 October) to the Autumn 2024 Budget: "It is disappointing that the government has not seized the opportunity to increase the inheritance tax nil-rate-band. Subjecting pension pots to a 40% tax will also come as a shock to many and unfairly penalises pension savers."

The STEP briefing note further covered the following:

Pensions and inheritance tax (IHT)

The government has announced a shocking change that estates with lump sum pension payments will become subject to 40% tax. This could cause huge difficulty for families who rely on the payments after the death of a loved one to mitigate debts like mortgages, medical bills or funeral expenses. This is a substantial reform that unfairly penalises people who have spent years accumulating their pension pot and had planned for a particular level of income. We strongly recommend that individuals, families and their advisors re-visit their financial arrangements in light of the change.

No increase to the IHT nil rate band

It is disappointing that the government has not seized the opportunity to increase the nil-rate band, which has been frozen at £325,000 since 2009 and is completely unaligned with inflation. As property and assets prices increase, the threshold continues to stay the same and is looking to stay that way until at least 2030.

Agricultural and business property relief and IHT

We are concerned that the government has announced it will reform agricultural property relief and business property relief from 6 April 2026. Relief of up to 100% has always been available on qualifying business and agricultural assets in addition to existing nil-rate bands and exemptions. However, from 6 April 2025, the 100% rate of relief will only apply for the first £1 million of combined agricultural and business property and it will be 50% thereafter.

This will come as a huge shock to agricultural businesses that have limited cash flow and may result in financial strain on family businesses and farms being forced to sell. In reality, most farmhouses with barns and acres of land to farm on will be valued at £1 million plus and it is unrealistic to think that the average farmer will not be financially impacted by this reform. STEP is calling for the government to increase this ill-considered threshold if it is going to proceed with the changes.

Non-dom reforms: STEP’s initial response

After much speculation, the non-dom reforms will be implemented from 6 April 2025 broadly as expected but with several important changes from the proposals first announced by the Conservatives.

Overall, the regime will be slightly more favourable than had been feared by existing non-doms. Of particular interest is the reduction in the inheritance tax ‘tail’. This is the idea that those who have lived in the UK for ten or more tax years become exposed to UK inheritance tax not only while they live here but also for some time after they leave.

It is a particularly important consideration for the internationally mobile. The tail was originally proposed to be ten years, but now it will depend on how long a person has been UK resident and can be as little as three years.

Some existing non-UK-resident trusts will also continue to benefit from a limited version of their existing inheritance tax protections.

As expected, non-UK trusts will lose protected status from 6 April 2025. Subject to some important exceptions, if such a trust has a UK resident settlor then income and gains in the structure may be taxable on the settlor from that date. As much as this will be disappointing for some, several sensible changes are at least being made as to how the attribution rules work here. For example, settlors are being given an extended right to recover from the trust any income tax that they pay on trust income. Some of the definitions in the legislation are being clarified to reduce confusion and settlors will be able to set personal losses off against attributed gains.

Capital Gains Tax (CGT)

The Chancellor announced increases to CGT in the Budget. STEP has advocated for stability in CGT rates as recently as May this year (see our consultation response). We have emphasised the importance of maintaining stable CGT rates to support effective estate planning and ensure compliance. We believe that four years is too short to be competitive with other European jurisdictions. A longer period of ten years’ residence, with a fixed annual charge in respect of foreign income and gains (regardless of remittance), seems to us to offer a more realistic incentive and a more competitive plan.

Consultation paper on Tackling offshore tax non-compliance (Tackling offshore tax non-compliance - GOV.UK)

The government has announced a new consultation on tax non-compliance. We have previously expressed concerns about proposals related to tackling offshore tax non-compliance, particularly in response to government consultations on raising tax standards and addressing offshore tax issues. We’ve generally highlighted the importance of ensuring that any new regulations do not impose unnecessary burdens on tax advisors who are already compliant with professional standards.