The Autumn Budget announced on 30 October 2024, introduced some significant tax changes. These changes will impact on wider financial planning strategies, but an area that may be overlooked is the potential impact on existing prenuptial or postnuptial agreements. If your agreements pre-date this budget, you should consider the following key points:

1. Unused pension funds and lump sum death benefits

Starting April 2027, unused pension funds and lump sum death benefits from registered pension schemes will be included in an individual's estate, potentially subjecting them to inheritance tax. This is a major shift from the current tax position and means they could be subject to inheritance tax, potentially impacting the financial provisions outlined in your agreements.

Why this matters:

• Potential tax liability: These changes could introduce a new inheritance tax liability, affecting the net value of your estate on death.
• Impact on agreements: If your prenuptial or postnuptial agreement includes the division or ringfencing of pensions, it’s crucial to reassess these provisions to ensure they remain fair and effective taking into account any tax that may be payable.

Given the significant shift in tax treatment, it’s advisable to review your current agreements to see if they involve the division or ringfencing of pensions to understand the potential tax implications. This proactive approach can help you understand the potential tax implications and make necessary adjustments to protect your financial interests. Don’t let tax changes catch you off guard. 

2. Capital Gains Tax increases

Capital Gains Tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value. It's important to note that it's the gain you make that's taxed, not the total amount of money you receive.

CGT applies to various assets, including:

• Property: Non-residential properties and second homes.
• Investments: Stocks, shares, and other investment assets.
• Business assets: Assets used in your business, such as equipment or property.

On 30 October 2024, the CGT rates increased effective immediately:

• Non-residential property assets: Rates have risen from 10% to 18% and from 20% to 24%.
• Business Asset Disposal Relief and Investors Relief: Rates will increase to 14% from April 2025 and further to 18% from April 2027.

If you own assets that fall under these categories, the increased CGT rates mean you will pay more tax on the profit when you sell these assets. This can impact the net value of your investments and business assets. This can be particularly problematic if you have a pre-nuptial or post-nuptial agreements as they often specify the division of assets based on their net value. With higher CGT rates, the net value of assets subject to CGT will decrease, potentially altering the agreed-upon division. For example, imagine you sell a non-residential property for £300,000, which you originally bought for £200,000. The gain is £100,000. Under the new CGT rate of 24%, you would pay £24,000 in tax, reducing your net profit to £76,000. Whereas, when your pre or post-nup was originally drafted, the CGT would have been £20,000 meaning your net profit would have been £80,000. 

Understanding CGT is crucial for effective legal and financial planning, especially if you have significant investments or business assets. The recent changes mean you might need to reassess your financial strategies to minimise tax liabilities and maximise your net returns. This could include transferring assets to ensure the best efficiency on tax overall. However, the use of this asset will have to be reconsidered if it is included in a pre or post-nuptial agreement. Legal advice will be necessary to ensure that the provisions of your nuptial agreement reflect a fair outcome, and to enhance your overall financial planning strategies.