Partners& - Spring Magazine, Top tips and key insights!


Taking the Opportunities

The Private Investment Office is an ecosystem partner of Partners&. It delivers its select group of clients unrivalled levels of service, expertise and, most importantly, tangible results in terms of preserving, managing and growing both their personal, family and business wealth.

On 23 March the Chancellor of the Exchequer delivered his first Budget and followed the formula: take with one hand and give with the other. Naturally the changes will impact people differently depending on their circumstances but there were some significant changes providing planning opportunities for those willing and able.

There were no surprises about some taxes, following the previous announcements. Corporation Tax now has a lower and higher rate, with tapering on companies with marginal profits and the Capital Gains Tax exemption shrinking.

The giving part related to pensions, with changes that can positively impact individuals and businesses, helping to mitigate the ‘take’ element. There are significant changes in the amount of pension contributions individuals and companies can make, and benefit from with the correct advice.

The Annual Allowance

This caps the money that can be paid into a pension and receive tax relief. This has increased by 50%, from £40,000 to £60,000, so higher contributions will now qualify for relief.

High earners who saw their allowance taper when earnings exceeded £240,000, have an increased threshold of £260,000 and the minimum allowance increased from £4,000 to £10,000. Those limited by the Money Purchase Annual Allowance have seen their allowance increase to the same amount.

Where contributions are within the annual allowances tax reliefs are available. Corporation tax relief on company contributions deducted before pre-tax profits provide a welcome offset against the Corporation Tax changes. Personal contributions benefit from income tax relief, whilst additional tax savings for both employer and employee, can be made if using salary sacrifice.

The Lifetime Allowance

This limits the total amount of pension wealth someone can accumulate, and exceeding this saw penal tax charges apply. These charges no longer apply, effectively removing the allowance.

Some individuals may previously have applied for protection against historic reductions in the lifetime allowance and there are some interesting interactions with the changes. For example, the tax-free cash is capped at 25% of the fund, up to £268,275, unless protection applied, however those with protection may start funding again.

The underlying investments in a pension can grow largely free from income tax and capital gains tax. Also, using the correct pension structure allows the pension to provide valuable financing for the business itself, in addition to the tax benefits.

Then there are the valuable estate planning benefits. The wealth in a pension is outside of the estate and therefore not subject to inheritance tax (IHT), and the correct pension allows the ability to cascade wealth to future generations. The recipients could withdraw funds without tax, making these arrangements valuable in any estate planning strategy.

For many years pensions were unloved and overlooked, the position will now improve. The importance of pensions in estate planning is highlighted by the Office for Budget Responsibility warning that in 2020/21 4.1% of deaths triggered an IHT charge, this is forecast to rise to 6.7% of deaths in 2027/28 with the annual IHT-take to rise from £5.3bn in 2020/21 to £8.4bn in 2027/28.

The Labour party has said it will reverse the changes. The next election must be before 29 January 2025 and if we have a change of government there is approximately a 2-year window ahead of a Budget being called.

Whilst these new allowances and rules can provide valuable planning opportunities, pension legislation is still complex, and pitfalls exist. The value of advice and the importance of having a strategic wealth plan should not be underestimated. The correct use of the various allowances and exemptions available, along with the use of tax structures can provide valuable tax savings for individuals and businesses.

Neil Jones
Head of Wealth Planning
The Private Investment Office