Technical Zone

 (00:00:01): Good morning and a very warm welcome to Aegon's Budget Seminar webinar. My name is David Kerr, director of Platform Consultancy, and I'm your host for today. Before we start, I'd just like to thank you all for attending our event. I know how precious time is for all of you. But taking time to understand these changes, should be well worth it. You also get 60 minutes' CPD so it's a real win-win, right? You just simply have to download the certificate at the end. Any questions that you have, if you type them into the chat, we'll answer them at the end. So our main speakers today, Martin Haggart, who's our technical manager for pensions, and Elaine Cruickshank, who's our tax and trust manager, have been deep into the detail of these changes and are involved in industry bodies. So make sure today is the absolutely most up-to-date position.

 (00:00:53): Today we're going to explain the detail behind the headlines, look at what the announcement said and what it really means for your clients and your advice. It's exciting. Change always brings opportunities too, so it's a great time to be an advisor. It's also a very exciting time to be involved with Aegon. In June, Aegon Group restated their commitment to the UK market, but it also established as one of their three growth businesses. With the aim of becoming the leading digital savings and retirement platform in the uk. We've already delivered a number of significant enhancements this year, launching a brand new platform, user experience, creating new product reporting, single sign on between the platforms and stabilizing income payments. But group are investing a further 300 million over the next four years to fundamentally transform the business. We're going to simplify the platforms, automate as many processes and journeys as possible and enhance the proposition. You'll hear more from me about our plans later, but let's get straight into the detail of today and I'll hand you over to Martin Haggart to start with the pension changes.

 (00:02:10): Many thanks David. Yeah, so there's echo, what David said there. We're absolutely delighted to Elaine and I that you've found time to, to be with us today. So many of you joining. So it just shows you the importance of this and we find that every budget, I mean, this is the most exciting time of the year for Elaine and I, which is sad to say, but, but good as well because there's lots of new things to talk about. So first of all, we're going to have a look at the pensions and now the changes that came through the budget and some other supplementary issues as well before I then pass on to, to Elaine, who's going to cover a whole range of different advice issues and opportunities that that came from the budget.

 (00:02:46): So learning objectives there. So I'm going to take you very quickly through the amending regulations that that came through just the last three days. We're still analyzing these, to be honest. They're very lengthy, two different sets of amending regulations. So we'll touch on them. Looking specifically at protected tax free cash, this scheme specific lump sum formula has now been confirmed. So we'll see how that operates. Very brief look at QROPS before we then turn the main attention to, to IHT and pensions. So that is the main thing that came from the budget announcement, but we're glad to say that there was no change to pension tax relief, no change to limit the amount of pension commencement lump sums despite all the previous media speculation and people taking benefits in advance to avoid any possible restriction there and no changes to the contribution allowances. So I think we take those main positives. The fact that pensions are still hugely attractive from a tax planning perspective.

 (00:03:49): The very firstly, we've had something like eight different sets of clients who have been in limbo for, for months, for some six, seven months, who have not been able to take protected tax-free cash, who perhaps haven't been restricted from making a transfer if they had enhanced protection or the payment of death benefits from funds that crystallized before six April, 2024 under the legislation, but still being tested even though HMRC said that's not what they wanted to happen. So all of these, I'm, I'm pleased to say, have been subject to the amending sets of regulations that came through on the 18th of November. Now, we are still working through these just to analyze, just to make sure there's no nasty surprises there. But but the good news is that assuming there there are no nasty surprises, these individuals will be able to take benefits. We'll be able to make the transfers that have previously been restricted from doing so.

 (00:04:43): So that's good news. Looking specifically at protected tax free cash or scheme specific lump sums as it's termed in the HMRC guidance, that is the new updated formula. Now, HMRC had three goals at this to try and correct that formula. And that's why there has been a delay in people taking out tax free cash 'cause it wasn't working correctly and people weren't getting the, the same amounts of protected tax free cash that they would've previously enjoyed under the LTA regime. So this is the new formula and what they're doing is they've substituted in the lump sum and death benefit allowance and part of the formula, which as I say will, will mean that most people will get the same tax free cash as they would've enjoyed previously. Where it doesn't work, however, is if an individual has an increased lump sum and death benefit allowance due to an enhancement factor.

 (00:05:33): Now that might be because they've transferred in benefits from an overseas scheme and they've claimed a, an additional lifetime allowance on the back of that. Or if they've benefited from a pension credit then there was an opportunity to apply for an extension to the lifetime allowance as well. And for those individuals, actually they will lose out as a result of this confirmation of the formula. But for 95% of the others it will work correctly. HMRC has also confirmed that when you're looking at the, the lump sum allowance for people who take scheme specific tax cash, you're looking at reducing the lump sum allowance by just 25% of the funds that are crystallizing as opposed to the lump sums that are paid out. Whereas the whole lump sum paid out does count for the lump sum and death benefit allowance. But there is no requirement to have sufficient lump sum allowance to pay out the scheme specific tax free cash.

 (00:06:25): So it could be that people who have benefits in multiple pension schemes will need advice in terms of in what order should they take those benefits. So let me just show you an example of that. So you'll have an individual who has scheme specific tax free cash in two different schemes, actually with an EPP of 1 million and with a protected lump sum of 600,000, also a section 32 with a protected lump sum of 20 from a 50,000 fund and a workplace pension scheme just with 200,000 in funds there. So if the individual takes the EPP first, then that would actually wipe out their lump sum allowance in full, which would mean that it wouldn't be entitled to any further tax free cash from the section 32 or from the workplace pension scheme. However, if they take an alternative action and take the EPP last, then they'll maximize the tax free cash in doing so because they could take the section 32 to get the protected lump sum that reduces the lump sum allowance by 12,500 because 25% of the funds that are being crystallized, the workplace scheme would then pay out 25% again, lump sum reduced by 50,000, which would then leave sufficient, or they would leave at least a pound of lump sum allowance available, which means that the formula overrides HMRC rules, which would allow them to take the full 600,000 despite the fact that being way over their available lump sum allowance.

 (00:07:55): So in doing it this way, it means that we get an extra 70,000 pounds overall. So advice will be crucial to avoid taking those benefits in the wrong order.

 (00:08:07): Next up QROPS, just a very brief look at this. So what HMRC has done here is they have removed the exemption that applied from the overseas transfer charge. It used to be you could transfer benefits to any scheme in the EEA or to gibralter and that was fine. You met the conditions to avoid the overseas transfer charge. So you had individuals prospectively in the UK transferring their benefits to one of these overseas schemes, despite the fact they were staying in the UK and then seeking to take tax free cash from the overseas scheme, which then didn't impact on the lump sum allowance and it meant they could actually get two lots of tax free cash and doing it this way. Now that was pointed out to HMRC, we said it was a loophole, it was going to be closed down and some individuals actually proceeded to do this despite the fact that clearly it was not going to be remaining open and HMRC would soon address it, and that's what they've done.

 (00:09:01): So they've said that you have to be in the country in which the QROPS is registered in order to avoid that overseas transfer charge. So effectively that closes off anybody who is in the UK transferring benefits to an overseas scheme to seek to then try and get two lots of tax free cash. But it does have an indirect impact where individuals who are moving to either Italy or to France, they won't be able to transfer the benefits to these countries because there are no QROPS listed on HMRC's list of QROPS schemes in either Italy or in France. So these individuals will not be able to transfer the benefits as things stand to a suitable scheme in those countries, which means that they'd have to retain benefits in the uk, which then means that they'd be subject to issues in terms of maintaining a UK bank account, which may be problematic and also can exchange risk as well.

 (00:09:57): So that's something that is going to an indirect impact of, of the changes that they've made there to, to stop that - two lots of tax free cash coming out. Obviously the main thrust of the budget as far as we're concerned was this announcement that IHT will start to apply to pension benefits from the 6th of April, 2027. I have used that imagery there purposely because this is going to be a bit of a journey. This is going to be a difficult uphill journey to, to get to where HMRC wants us to get to in terms of deducting charges and then paying that to HMRC for the value of pensions. Now it is not true to say that pensions aren't included for IHT at the moment 'cause some pensions are, if you, it really very much depends on the, on the pension vehicle. So you've got a lot of legacy pensions, say retirement annuity contracts and section 32 contracts that would ordinarily pay death benefits straight to the estate unless the policies have been written under trust.

 (00:11:00): So they would already be included. Some of our schemes operate with binding nominations. Nest used to do this. So the individual did a nomination and the scheme would simply follow that nomination. Now, no, nest actually introduced a discretionary facilitator as well, but the NHS scheme does the binding nominations and the various others as well. And already they are included in the estate for IHT. But most schemes, most other schemes would use discretion where the scheme administrator would choose the beneficiaries taken into account. The circumstances of the deceased client would collect information to to decide who is the most appropriate beneficiary. They would take any nominations that have been supplied by the, by the client into account before they then make that decision. Because of that it would normally be excluded for IHT. I say usually because there are some circumstances where perhaps individuals transfer in the knowledge of ill health and then die within two years.

 (00:12:00): And these can also be included for IHT at the moment. So from six April, 2027, death benefits from unused funds as HMRC is now referring to them presumably uncrystallized funds also from annuities and from drawdown will be included in the estate for IHT. It's only really charity lump sums and scheme pensions from DB schemes also scheme pensions from DC although they are few and far between only those are excluded. From this good news is that the spouses and civil partners IHT exemption will continue. But there's this new process that HMRC is consulting on such that schemes and the personal representatives will have to work very closely together to determine if IHT is due and if so, how the nil rate band is then apportioned between the different components between pension and non-pension and if there are multiple schemes, how that that's then apportioned between those multiple schemes.

 (00:13:02): So this is going to be quite an involved process and I'll just take you through what it looks like just in a second. So it does remove that distinction between discretionary and non-discretionary disposal. So the question then is, well, why do we operate with discretion going forward? Because time period and where that operates can be quite lengthy. HMRC gives us up to about two years before lump sums have to be paid out. And you've got complex family situations where there can be quite a lot of toing and froing to, to collect sufficient information to be able to exercise our discretion. So do we move then to a non-discretionary basis across the board, which would make things easier? But in doing so, we'd have to then change the scheme rules. We'd have to change the terms and conditions and all the literature that relates to that scheme.

 (00:13:55): We then have to convince the policy holder why that's in their interest. 'cause They might think they're losing out as a result of that, whereas possibly it could make the whole process a bit easier. So that's something we'll have to wrestle with over the course of time. So this is a new process that, that HMRC that is consulting on, it's very much consulting on the process and the questions that they're asking are very much related to that process as opposed to any possibility of reconsidering that as a policy decision. So the IHT charge will be based on the gross funds at the date of death, and that's before distribution or designation into to draw down. But you also have this prospect of double taxation. So you've got the income tax provision still continue to apply on death before age 75 if the lump sum is paid out.

 (00:14:44): And we tested against the lump sum and death benefit allowance and obviously all benefits paid out post 75 would be subject I to income tax as well as as possibly IHT. And I'm surely you'll seen in the press that in some extreme circumstances, especially in Scotland where you've got higher rates of taxation, you could end up paying something like 91% tax on benefits beyond age 75 for individuals in Scotland and slightly less in than the rest of the country. So that's something that HMRC is aware of, but no suggestion that there's going to be any relaxation there as yet. There is a 12 week consultation. We would we'll certainly be going back in very strong terms about certain aspects of it. We'll be doing that individually. We'll also be doing it through representative bodies that were that we party of. But we would also encourage you to to, to join that, that consultation and put forward any points that you think are, are important.

 (00:15:45): HMRC has said that the numbers likely affected 10 and a half thousand new estates will be brought into this IHT process that previously wouldn't be affected under the current rules. And 38 and a half thousand estates who are already affected will prospectively be paying more. And I said that the average liability at the moment nearly 170,000, and they anticipate that that will increase by just over 30,000 when pensions are included. So raising roughly what HMRC suggests maybe a billion pounds per year as a result of these changes. But they recognize that the figures don't take into account any behavioral changes. And you have to say that people will certainly change their behaviors as a result of these proposals.

 (00:16:34): So here is the proposed process. So the first, the schema will receive notification from the personal representatives that the person has died. They will then be tasked with going to collecting information on total assets now within two months. The scheme must notify the personal representatives of the value of the benefits within the scheme unused and also any death benefits payable who the beneficiaries are that have been chosen as the spouse or civil partner being chosen. And if so, what are the amounts due to each beneficiary? The technical document says that we should all, the scheme should also confirm the amount of the lump sum allowance used, which I think is a mistake. I think it should be the lump sum and death benefit allowance that's already been used. 'cause That's, that's actually the most important in these circumstances. So once that information is then furnished to the personal representatives, they will then use that with all the other information they've collected from other non-pension assets and from other schemes.

 (00:17:35): And they will use a new HMRC calculator to determine if the estate is due IHT and if so, how the nil rate band will be allocated across the different components. And also if there's multiple schemes, how bring it across each scheme, they'll then issue a statement to each scheme to say you have been allocated X amount of the inaugurate band. And the scheme will then use that statement to calculate the IHT charge and pay it to HMRC. And the document talks about the scheme notifying HMRC and then HMRC raising a charge and then the scheme, then paying the charges if those are separate steps. But I don't think that will be the case. I think that will be a single step. So you alert them to the amount and then it just, you just pay the charge at the same time through the accounting for tax process that's currently there.

 (00:18:30): Scheme benefit, then what happens is that the scheme will then pay the tax and then it'll determine how the beneficiaries want the death benefits to be paid. And thereafter the personal representatives will complete the process by furnishing HMRC with all the relevant IHT forms. So that is the proposed process. Now we can see various issues with that. One that's going to jumps out to me as this two month deadline for the scheme to notify the personal representatives of the value of benefits, but more importantly, the beneficiaries they've been chosen and the amounts that are due to age. Now many of these cases, as I've said earlier, take quite significant time to exercise the discretion to collect the information that the ombudsman expects us to collect, to be able to operate the scheme rules and, and exercise our discretion. So how is that going to be achieved within a two month deadline?

 (00:19:25): Now bear in mind this whole process from start to end has to take six months from the end of the month, which the client died. Otherwise the scheme is then due interest on any outstanding IHT. Now that's separate from the IHT and interest that would apply to the personal representatives on the balance of this estate. So they've got two possible interest charges running. All schemes are going to be bound by the slowest scheme to react. Certain schemes are, are, are really slow providing values. So how is that going to then impact in this whole process? What happens if there's property commercial property tied up in pensions? What happens if some assets are going to suspended? All this is going to be quite difficult to achieve, to actually pay out that tax charge within this timescale. And that's something we're certainly going back to HMRC with.

 (00:20:22): Just a couple of case studies. So here we've got one where Andrew dies, aged 70, he's got unused DC pension funds of 400,000 and the scheme operates with discretion. So the pension doesn't form part of the estate. Now, Andrew's civil partner has been chosen as the beneficiary. Death benefits paid out would be subject to the lump sum and death benefit allowance if paid as a lump sum and the remainder of the estate 1.2 million, which passes to civil partner. So there's no IHT due. Now from 6 April, 2027, yes, the value of the pension will be included in the estate that would take the estate up to 1.6 million. But if the benefits are paid to Andrew's civil partner, then again, the exemption applies. However, what happens if the nomination changes? What would've happens if Andrew's civil partner predeceases or for whatever reason the scheme chooses to pay to another party that would then bring in the prospect of IHT.

 (00:21:20): But in these circumstances, assuming there's no other changes to how the non-pension assets are distributed, then that would only apply to the excess that's over the nil rate band. But you can see the implications of the scheme choosing a different beneficiary than than perhaps the one that's on. That's on record. And that happens, that happens at the moment where yes, the individual has done a nomination, but their circumstances have might have changed, they might have not updated the nomination. So it's going to be very important to make sure nominations are completely bang up to date and are reviewed regularly and, and, and changed as in when circumstances dictate.

 (00:22:02): And this is a, a separate example where it just shows you the complexity here where you've got multiple schemes. So Peter here dies age 76, he's got two schemes, 200,000 in scheme one, 250,000 in scheme two. And both schemes choose to follow the nominations that have been supplied with the spouse getting 50% of the children getting 25% each. So the value of non pension assets, 700,000 and 500,000 of that has been left to the spouse and the will 200,000 of it went to the children. So the total value of the estate here of 1.15 million after the spouse's exemption, that means 425,000 is subject to IHT, which is basically the total less the non pension assets, less the value of the pension death benefits going to the spouse. So that charge no less the nil rate band, a hundred thousand total charge 40,000. Now what happens is the personal reps would inform the pension schemes that that the assets subject to IHT equal to 53% of total assets.

 (00:23:03): So what happens is that 172,250 of the nil rate band would be allocated to the pensions, but that would be proportionate - proportionally allocated between the two schemes based on their total value. So scheme one pays 9,400 scheme two pays just 11,700 total IHT payroll 21,176. And then after that, then the benefits would then be allocated under scheme one and scheme two. But because obviously the client died at 76, then those benefits would be subject to income tax, whether paid as lump sum or as income. In terms of advice issues, planning horizon. Yeah, this is something important, isn't it? 'cause We've, HMRC has actually given us two and a half years as a lead in, which is very welcome given what happened with the lifetime allowance and its removal within just over a year, very difficult to achieve here. We've got an opportunity to plan ahead for it.

 (00:24:01): And I don't think there's any need for urgent action other than perhaps for people who are over 75 who are delaying tax free cash. They are perhaps a group that are separate and probably needs advice sooner rather than later. Undoubtedly, IHT advice is going to be needed on total assets and making use of the various allowances that are available and gifting perhaps people accessing their benefits earlier and doing something else with it. Investing it elsewhere, making outright gifts and then surviving for seven years or taking advantage of the annual allowances to, to gift funds away or gifts from normal expenditure as obviously that's an area we're receiving most questions on at the moment. So reviewing and updating nominations, well certainly we always recommend nominations are reviewed and updated with changes in circumstances, but also with changes in legislation and that certainly falls into this category.

 (00:25:00): Yes, the individual could name a spouse, a civil partner for a hundred percent and that would avoid IHT initially. But what happens then on the second death, on the death of the spouse or the civil partner and naming any others needs can really specific advice. And it could be you're nominating them just for a portion of the nil rate band that's likely to be attributed to that scheme. That could be, that could become a feature under these new provisions. But it will need advice. We still think it's going to be very important to name all possible beneficiaries. 'cause Beneficiary drawdown's still going to be really attractive. But it's, it is going to need a bit more detailed advice looking at total assets and not just the pension benefits. So there's a risk of, IHT if the scheme chooses anyone other than the spouse of the civil partner and you could argue that's going to go going to foreseeable harm issues attached to it.

 (00:25:54): That's something again we're going to have to consider. Do we move to more binding nominations And if so, obviously that would only be for nominations after a certain date because we couldn't then change the existing conditions for someone who's previously done a non-binding nomination. So it has, its in its own individual challenges, even moving to completely binding nomination basis. And that would be easier, I have to say. In terms of making those nominations sorry, making those decisions and choosing the beneficiaries within that two month period's going to be much easier. If it's a binding nomination, transfers and contributions, we have to say that generational planning is going to really have to be achieved during the client's life as opposed to death benefit planning. Looking at, do you take some of the funds out of the pension? Do you use that to fund third party contributions for others or for children looking at junior ISA, junior SIPP for proper generational planning?

 (00:26:51): So not on death, but during lifetime. Contributions after age 75 probably less attractive. That's, that's probably, I would agree with that. But on the plus side, there's no barriers. There will be no barriers to transfers made in the knowledge of ill health 'cause they will be included. They are included at the moment. They will continue to be included in the future. So, so there's no real barrier there in terms of proceeding, reviewing existing strategies very much differently, reviewing any pension loss strategies. That has been a feature just the way with the legislation has gone but been primarily used for estate planning. And I blame the IFS for this 'cause they said this about two years ago, that all these pension vehicles have been used to pass funds down to the generations. I would, we disagreed with that at the time. Most people are funding pensions to provide for the long term retirement income needs. Yes, some of them are being used for estate planning, but that that's not, not the case generally. And there are tax charges beyond age 75. We argued that as well. And on the basis that 86% of people die and make it, sorry, die after age 75, there was always tax on on the death benefits anyway.

 (00:28:06): Delay tax free cash, sorry, delay tax free cash beyond age 75 risks a double charge or to show an example of that. And, and a second. If individual has no need for income, then perhaps they're going to consider withdrawing that investing it elsewhere or gifting it to another. There's been some talk about trust being used for becoming back in fashion because of these IHT proposals. There might be a greater use of spousal bypass. There would still be IHT on the first death, but it would be outside the pension environment on the second death. So perhaps but those trust do need specialist tax advice, specialist investment advice. 'cause Those funds have been held in that trust long term. And also the trusts have to be registered as well. And there's question there about the responsibility for any policies that have been assigned to members from old occupational schemes of where policies have been written under trust.

 (00:29:02): So not a pilot trust but sits separately, but actually the policy has been assigned to the trustees of the trust, which was common prior to RDR. So who's the responsibility there? Where does that lie? The process? Yeah, very bureaucratic process as as outlined by HMRC. It requires heavy liaison between the personal representatives, the schemes, and HMRC within a very short timescale. Now it could be that there are no personal representatives and they have to be appointed. There might be no will. So that's going to delay matters as well. And you're really putting all this going to onus on them to collect all information on all assets, identify all pensions, which could be very difficult if an individual has got a number four or five different pension arrangements. And then use that HMRC calculator and issue statements to each of these schemes. And that in itself could, this bureaucratic process could drive some sort of consolidation and pension arrangements could be a good reason to consider that because it's going to be much easier for the personal representatives to, to do this, to go through this process. If there's only one scheme involved a hasting discretionary process, that's going to be a challenge to, to two months. That's something we're going to have to consider. There is a cliff edge. The rules, existing rules apply right up to the 5th of April, 2027 as proposed, but then immediately the rules will then change thereafter. We need to make sure, however, that there's no prospect of death before 6 April then becoming subject to the IHT provisions. So we need to make sure that that, that that is reflected in the legislation that comes through.

 (00:30:44): Well, one of the main questions we're getting in the moment is it's been very common for individuals to do 98 1 and one. And does that need to be changed now? Well, I have to say it's, it's very effective still for, for deaths up until the 5th of April 27. So you look at two and a half years, but that's still absolutely something that should be reflected in the nominations that have been made. Beyond that, it very much depends on the total assets there available nil rate bands, the allocation between different components and, and, and spouses exemption as well. But it could be, as I talked about earlier, you might do targeted nominations for the amounts that are equal to the nil rate band. And then just keeping that regularly under review and then changing it as, and when circumstances dictate.

 (00:31:31): And just an example of taking or delaying tax fee cash at age 75, you can see the the, the downside of of, of delaying tax free cash. And because the reason for that is then you've been subject to income tax as well as IHT. So you're losing that ability to take tax free cash. So why would you do that? Because taking the tax free cash and then putting into the estate is going to reduce the over overall tax bill. Here you are looking at someone with 1.2 million who has a non pension asset who's got 600,000 pounds in pension. So do you take the 150,000 pounds out as tax free cash and do something else with it or do you just retain it within the scheme? And that's this just how the figures then play out by taking tax free cash. The individual is, is better off to, to the extent of 40,000 and the reason for that's coming out, the pension environment such that it wouldn't be then subject to to income tax once IHT is being paid. So I think anybody in these circumstances beyond age 75, and we've seen a lot of them just by the number of transitional tax fee amount certificate requests we've been getting for over 75. A lot of people have delayed taking tax free cash beyond age 75 and that's something that will certainly need to be reconsidered.

 (00:32:51): So with that, undoubtedly this change in legislation is going to drive, going to need to, to look at overall assets, not just pensions. It's going to drive the need to, to look at other investments, other possible investments, and also taking full advantage of all the different allowances that are currently there. Whether that's that annual allowance of of, of 3000, small gifts, only 250, just not really, it's just nominal amounts. But really most questions we're getting at the moment is on gifts of, of net of income not changing that individual's standard of living. But what does that mean in practice? How regular, what amounts? And having it all documented. I'm pleased to say I have an expert here. Elaine tells me she wrote a thesis on this subject, so you're in fantastic hands. And I'm just going to pass over to Elaine, it'll take you through the next part of the presentation. Just bear with me just a second as I pass you over.

(00:34:03): Thanks Martin. As as if I wasn't a geek enough, you've just actually made me sound even more of a geek now. I did, I did indeed do my step thesis on normal expenditure rate of income exemption, but that was some considerable time ago, I have to admit. So as far as my session is concerned, I'm going to focus on a couple of key areas today. I'm going to look at the CGT changes that were announced in the budget and the impact that will have on wrapper choices going forwards. And I'm also going to look at the IHT changes that were announced, and I'm going to focus on certain implications that IHT on pensions may have on IHT planning and some things that your clients may want to consider going forwards. So first of all looking at the income tax treatment of directly held investments in the dividend tax fee allowance and personal savings allowance, there were no changes announced in the budget. Those remain at the rates that they were at pre-budget. So 500 pounds of a dividend tax fee allowance and personal savings allowance at a thousand pounds for basic rate taxpayers and 500 for higher rate taxpayers. And there was also no change to the income tax rates either in relation to dividend dividend distributions, whether they be paid out as natural income as cash or whether they be accumulated. And again, there was no change to the income tax rates applying to interest distributions either.

 (00:35:44): And we did see a change to capital gains tax rates. So there was no change announced to the capital gains tax rates that apply to disposals of residential property. However, the capital gains tax rates that apply to disposals of assets other than residential property were brought in line with the rates that apply to disposals of residential property. So what that means is that with immediate effect from budget day, the basic rate of CGT rose from 10% to 18% and the higher rate rose from 20% to 24%. Now in advance of the budget, we were expecting that to be a lot higher, the rise that was going to be announced. At one stage there was speculation that CGT rates would actually align with income tax rates, but fortunately that didn't materialize on budget day.

 (00:36:41): As far as trusts are concerned again, the rate that will apply to disposals of assets other than residential properties will rise to 24% for most trusts. And the CGT annual exemption is remaining at the reduced rate of 3000 pounds for individuals and 1,500 for most trusts. So that's the background given the changes that came through in the, the budget or, or the announcements that were made in the budget. So where does that leave us now in advising clients? Should they go down the route of investing in an investment bond or should they go down the route of directly investing in collectives, especially given the fact that CGT rates have increased and that we have a reduction in the annual CGT exemption? Well, actually this choice is not clear cut and there's a number of different factors that will have to be considered and the decision or the recommendation will depend on your client's exact circumstances.

 (00:37:49): For example, it would depend on the investor's current and the future tax position. So are they a higher rate taxpayer now, might they be a basic rate taxpayer or a non taxpayer in retirement? Does the client have the full CGT exemption available and dividend tax fee allowance and personal savings allowance? That being the case then obviously from a tax planning perspective, they should be investing direct to make use of those allowances and exemptions. Would the client qualify for top slicing relief? Is the client likely to move overseas further down the line? Could I say could they control the level of other income in the year that a chargeable event gain would occur? Could they take less income draw down in that year, for example, from their pension? You'd also have to consider the tax treatment and planning opportunities of the different wrappers.

 (00:38:47): For example could the, the client maybe assign segments of a bond to a non-tax paying spouse to mitigate tax? Could the investments be held so that each spouse's annual exemption and dividend tax fee allowance, personal savings allowance could be used. And then you've got other non-tax factors such as FSCS protection is that important to the client? Means testing obviously where a client invests in an investment bond and the reason for that investment is tax planning purposes, it's not with a view to depriving themselves of that asset for means testing, then actually investment bonds with an insurance element are still outside the means tested estate where the reason for recommending that investment bond investment wasn't to deprive the client of assets for the purposes of means testing.

 (00:39:50): But looking at a simple example, well, I say simple, it actually looks quite complex out here in the, in the table, but I've just done some simple maths behind this example to show that notwithstanding the rise in capital gains tax rates, if a client is investing for growth and they're investing in accumulation units, then actually all things considered and all things being equal, then actually the net proceeds after tax are still higher if they invest directly as you can see in this example. And that's because obviously basically taxpayer pays income tax at 20%, but they would pay CGT at 18% and higher rate taxpayer would pay income tax at 40%, but obviously would pay CGT at 24%.

 (00:40:49): One consideration of course would be that if the client is an active investor and the CGT annual exemption might not be sufficient for that investor, then an investment bond may be a more suitable vehicle because obviously there wouldn't be capital gains being generated in that situation. But if on the other hand, the investors' requirements are more for income than capital growth, so there's a higher need for income to be generated, then the actual balance in this situation is more in favor of an onshore bond than in directly investing in collectives. As you can see from this calculation here, and the reason for that is that dividends within an onshore bond are not subject to corporation tax. However, the investor gets a 20% notional tax credit. So they get a free tax credit effectively to offset against their basic rate or against their higher rate tax liability, meaning that they'll have less physical tax to pay to HMRC.

 (00:42:06): So what tax planning opportunities are still available? Obviously it's really important to make full use of both spouses or registered civil partners annual exemptions and allowances. So make sure that where clients are looking to invest in a GIA that actually both spouses hold assets so that then you've got full use of two annual exemptions, two dividend tax fee allowances and two personal savings allowances. Also important to make use of losses both in the tax year and any losses brought forward for capital gains tax purposes. And as I mentioned previously, the capital gains tax rate change with immediate effect in the middle of the tax year, which is unusual. HMRC stated in the budget papers that a client can actually make use of their annual exemption, any losses that they have available and any basic rate band that they have available in a manner that's most beneficial to themselves.

 (00:43:13): So obviously you'd want to offset those elements against the amount of gains that would be subject to tax at the increased rate post budget day first before you then look at the pre-budget and gains. Also worth remembering that capital gains tax uplift is still available on death. So for example, husband dies all the assets passed to the surviving spouse. For capital gains tax purposes, she inherits those assets at the market value at the date of death, and the market value at the date of death will then be her book cost for CGT purposes going forwards. If on the other hand those assets had passed as part of a deathbed planning exercise, so has passed the assets to the wife, then those would've passed at a no gain, no loss basis. She would've taken over over her husband's historic book cost and she would then have inherited that inherent capital gain.

 (00:44:18): So it's still worth remembering that with directly held investments, that is still that possibility of the CGT uplift on death. But again, there was a lot of speculation in advance of the budget that that might be changed, but there were no announcements to that effect on budget day and personal pension contributions can also help to reduce the amount of capital gains tax that would be due and on budget day the chancellor announced that ISA allowances were going to be frozen until 2030. So again, GIA to ISA will be invaluable because obviously you'll be moving the assets out of a tax environment into a tax beneficial environment.

 (00:45:07): So I just thought I'd do a quick refresher on how a client's CGT liability can be reduced by making a personal pension contribution. So I've got a case study here, James, who had total taxable income of 37,430 in the tax year, 24/25. So he is a basic rate taxpayer. He sells some shares and incurs a net capital gain after deduction of the annual CGT exemption of 17,500. His CGT liability would be 270 pounds at 18%, so basic rate of CGT and the remainder of the gain would be subject to tax at 24%. So that that would give him a total CGT liability of 4,086 pounds and 60 pence. However, if James were to make a net pension contribution of 13,784 into a pension scheme operating relief at source, then actually that pension contribution, the gross pension contribution would extend his basic rate band, meaning that the whole gain would be subject to tax at the basic rate of CGT. So the CGT payable would be 3,150. So not only has he saved nine hundred and thirty six pound sixty in CGT, he's also got basic rate relief on his pension contribution as well.

 (00:46:33): So there was also a change announced to the rates that will apply to business asset disposal relief that was formerly called Entrepreneurs Relief. So the lifetime gains limit remains at a thousand pounds and the rates of CGT will remain at 10% in the current tax year, rising to 14% in the next tax year, and then 18% thereafter. So there were also changes announced to agricultural and business relief. Now, I know that this isn't related to financial services, but I know that you will probably have clients that are farmers or that own businesses. So I thought that I would touch on these changes today. The changes are subject to a technical paper, which will be published in the new year and that was announced on budget day and the changes will apply for deaths from the 6th of April, 2026. And there were some anti-forestalling measures applying to gifts on or after budget date announced on budget date itself.

 (00:47:42): So what does this mean in practice? Well, going forwards, the first million pounds of combined agricultural and business property will be a hundred percent relieved and the allowance will be allocated proportionately between the agricultural property and the business property and the lifetime allowance will apply to the estate, field potentially exempt transfer and or any chargeable lifetime transfers that are made. Important to note that property that is currently 50% believable. So where, for example someone uses land or buildings or plant machinery in, in a business that they own they would currently so they own that own the own the land, the, the buildings, the plant, the machinery, and they use it in their own business. Currently they would qualify for 50% relief on that in business property. That won't actually be subject to the million pound threshold.

 (00:48:52): As far as the value of assets over the threshold is concerned the, the new rates of agricultural and business relief will be 50%. So there'll be an effective IHT charge of 20%. I think going forwards it'll be more and more important for clients to actually take professional advice in relation to valuations because obviously they're going from a situation of this type of property being a hundred percent relieved to actually having to pay IHT at 20% on the excess over the million pound threshold. So it'd be really important to get proper valuations done so that they can actually enter into negotiations with HMRC and have the confidence in entering those negotiations. And also with embedding in mind too that non quoted or unlisted shares such as shares quoted on the on the AIM market that business relief in relation to AIM shares will be reduced to 50% as well. And the holdings of AIM shares won't be included in lifetime, the lifetime million pound threshold. So that'll be, you know VCTs, EISs for example.

 (00:50:14): So some planning opportunities in relation to business owners or farmers and people that are invested in AIM shares. Obviously AIM shares and the investors will continue to receive the income tax and capital gains tax benefits of those investments and they will still qualify for the 20% reduced rate of IHT. So whilst the IHT treatment isn't quite as generous as it was, there still are generous reliefs available through holding AIM shares, we may see a move to more protection policies being held in trust to meet the IHT and business owners and farmers might want to consider bringing forward succession planning. So for example if a farmer were to put assets that qualify for agricultural property relief into trust now, so they put them into a discretionary trust, then under the proposals that have been put forward by HMRC, the Agricultural Property relief would still apply to that chargeable transfer at a hundred percent.

 (00:51:23): And if the individual survives for the seven years, then actually they will have benefited from that a hundred percent relief. So I, I think that business owners and farmers should really be taking some tax advice just now if they're looking to actually get the next generation involved in the business or in the farm at some stage. Obviously, capital gains tax is also a consider consideration here. It's not just about IHT planning and I think that's why really there'll be a need for taking full tax advice. And I mentioned about the million pound threshold, it's important to note that that won't, unlike the resident's nil rate band and the nil rate band, that million pound threshold won't be transferrable between spouses. So again, business owners farmers should actually consider transferring assets into a spouse or civil partners names so that then on death they can benefit from 2 million pound thresholds.

 (00:52:21): We also saw announcements that the nil rate band is going to remain frozen at 325,000, the residents nil rate band at 175,000 and the taper threshold for the residents nil rate Band at 2 million until the 5th of April, 2030. Now, I've been getting asked quite a lot of questions about the residents nil rate band, especially given the potential IHT changes that are coming through on pensions. So I just thought I'd do a quick refresher on the residents nil rate band because I thought this might be quite timely. Obviously the nil rate band applies where someone dies after the 5th of April, 2017 and in order to qualify for that residence nil rate band, they have to leave an interest in a property that's been their main residence at some point and they have to leave it to one or more direct descendants. So children, grandchildren, their spouses, and to the extent that the residents nil rate band is unused on the first day, it's transferable for use on the surviving spouse's subsequent death.

 (00:53:31): And where the estate's worth more than 2 million, the residents nil rate band is tapered down by one pound for every two pound over the threshold. Now, as far as this taper threshold, the 2 million threshold is concerned that comprises assets, which would include obviously your pension, the value of your pension from 2002 from 2027 going forwards. And it also then you'd deduct your liabilities and debts from that. But it's before taking into account spouse exemption, it's before taking into account relief such as agricultural relief or business relief. And, and also with bearing in mind too, that in gifts that were made during lifetime or even on deathbed as part of deathbed planning, don't come into that 2 million threshold. So so as far as tapering is concerned, that can obviously impact on the residents nil rate band that's available to the estate of the deceased.

 (00:54:37): And it can also impact on the amount of residents nil rate band that's transferrable. And so effectively it can obviously decrease the amount of residents nil rate band that's available on the first day to transfer over. If the second spouse then has an estate that's worth over 2 million, then the transferable nil rate band and their own residents nil rate band will reduce. So if for example they received a reduced transferable nil rate band of a hundred thousand and they have their own 175,000 and their estate is worth more than 2 million, then it would actually be that combined 275,000 that would taper down. So actually you can see that pensions could well have quite an impact here once they start to be included in that 2 million in value.

 (00:55:36): So what planning opportunities are available? Obviously I've just mentioned that lifetime or deathbed gifts aren't included in that 2 million for the taper threshold, so might be worth considering doing lifetime planning to reduce the value of the estate. Using a discretionary nil rate band trust on the first death rather than all the assets passing to the surviving spouse could be useful, especially if the surviving spouse might then have a problem because her estate is going to be hit. Her or his estate is going to be above the 2 million threshold because by using the discretionary nil rate band will trust then any growth, for example, will be kept outside of the estate in addition to the value of the property that forms part of that discretionary trust.

 (00:56:27): Also maybe worth considering using the residents nil rate band on the first death if the estate on the first death is likely to be below the 2 million in threshold as that way you're actually making use of the residents nil rate band on that first death rather than it being lost by tapering on the second death because the survivor's estates worth more than 2 million. But obviously doing any planning of that sort, you have to consider the potential impact on the survivor's continued right to remain in the property. I'm really conscious of time here just given the fact I think it's almost 11, 11 o'clock, I'll just really quickly obviously we're, there's going to have to be much more in consideration given to IHT planning opportunities going forward. Lifetime gifts as Martin mentioned earlier, using exemptions, using trusts, putting a will in place to use the spouse exemption or to make gifts of more than 10% of the net estate to charity to benefit from a registry of IHT of 36%. And I think that we'll see more and more use of insurance policies and trust to fund IHT. I was going to cover normal expense rate of income exemption, but in the interest of time I'll hand over to David.

 (00:57:48): Thanks. Elaine and Martin, that was fantastic. It really was. Some of these changes are really complex and I know there's still consultation going on with various different government bodies before these rules are finalized. But still terrific being able to cut through a lot of that noise in the press and see a proper comparison, Elaine, of the tax wrappers for those that are either accumulating or taking taking income. I know it really does matter. It's also great for everybody else to know that you guys will be on hand to support people with any further clarity or changes that come through when it's clear. So we do have a number of questions I'm going to ask a few and any that we don't get to, we'll just answer back in the chat. So first one is a pension one, is there an impact on dependent drawdowns within the budget? Will it affect those that already have it? Martin?

 (00:58:44): The suggestion is that yes, there, there's one of the benefits that is listed at the back of the appendix of the technical consultation document that suggests that dependents draw down would be included. Yes. But again, that's something we're going to have to go back on saying, well this was never, never covered when that, when that was arranged, you know, you have to say, well, how you then apply taxation to someone who had no idea that this was ever going to apply? So that is something that we'll all feedback but as proposed, yes, it's on the list.

 (00:59:12): Okay, great. And how is death and service impacted in the new pensions world? Are they part of IHT accepted schemes or not? So that's been asked by a few people.

 (00:59:24): Right. Okay. That, again, that's a common question and it's, it's not that clear what the technical consultation says, and I'll read it. Life products purchased with pension fund are alongside, as part of a pensions package by an employer are not in scope. What does that mean? Is it just that that's been badly worded and they're really just talking about excepted group life and relevant life? Or are they talking about DIS that's under a registered pension scheme? It would appear that it's a, I mean it comes under a lump sum, a defined benefit lump sum 'cause that's what you're insuring. So that would appear under the appendix to be included, but that statement's just a bit vague, ambiguous, and we really need to get clarification on that. But if it does, then it's going to require a review of all these DIS arrangements. But Elaine and I were talking about this this morning that could have further implications, which I'll <inaudible> Yeah.

 (01:00:15): That, that could have further implications based on the fact that this was something that I used to ask quite a lot on the protection side, where there was maybe a registered scheme in place and they were looking to move over to accepted group life based on the fact of the, the tax benefits. And because it was set outside of the pension rules and one of the conditions for excepted group life to be classed as an excepted group life and and qualify for the tax benefits was that it shouldn't be put in place for a tax avoidance purpose. So actually it, if you replace a registered a registered in group life in policy with an accepted group life policy and it's like for like, essentially, then you have to be really careful because what's the driver for changing from one to the other? It's to actually mitigate tax. So I I, I think that that will be an area that will we'll need careful consideration.

 (01:01:12): Okay. Thanks Elaine. One la we'll take one last question. Said you mentioned inherited pension calculation done on value of pension on a date of death. What about growth after the date of death?

 (01:01:26): Well, I guess it depends. It is going to apply to the value of pension as at that point, but what's happened is most certainly from an Aegon perspective is we would then transfer the assets into cash immediately on notification of death. So we shouldn't really see any big increase or, or any decrease in the value. So it should be there or, or thereabouts.

 (01:01:48): Right. Okay. That's great. So look, I think we're going to wrap up there any other ones we haven't, we'll answer in the chat. And we'll send out the slides and the recording after today. And we've also posted a link in the chat for you to download your CPD certificate. However, before we finish, I mentioned at the beginning I would cover more of the propositional changes that you'll see for us over the next year. So I'll quickly run through that. The additional investment has given us the ability to accelerate our roadmap. So you're going to see a regular stream of improvements focusing on the developments you told us matter most to you and your clients. So we've got 12 key priorities for 2025 and you see them here. So extending product reporting, adding in junior products like junior SIPP and junior ISA, increasing our bulk transfer illustration automation, multi-models within one product, improving our income reliability and some of the transfer enablers.

 (01:02:54): Having an onshore bond is is in the plan for next year. As Elaine went through the tax changes depending on what the client circumstances are. So we're going to have an onshore bond. The first two that we're going to come to though are extending our offshore bond partners. So from Canada Life that'll extend for, we currently have Isle Man, but it'll be Isle of Man and Ireland, but we're also going to add on utmost Isle of Man and Ireland. So we're going to extend out that capability because offshore bonds is increasing in in usage as well. And also enhancing our charging flexibility. We are tier charging cap and collar numerous different flexibility in the way that you can charge your clients as well as a fully automated GIA to ISA transfer process on on ARC. Now, alongside that, we'll also be delivering a range of smaller enhancements throughout 2025.

 (01:03:52): So it's shaping up to be a fantastic year of delivery and we'll continue to listen to what the feedback you give us in what's required. So that's us done for today. I really hope that you found this morning useful. Clearly there are many changes that face us all and hopefully what's clear to you is that you're going to here to support you and your clients no matter what happens. We also like to thank you for your continued support. We really do appreciate it. So that's us done. Remember to go into the chat and download your CPD certificate and thank you very much for your attendance. Thank you. Thanks everyone.