What the UK Budget could mean for you and blended family considerations

With predictions around what the Budget will contain on 30 October reaching fever pitch, MacKinnon has been examining what it could all mean for clients. And with a growing number of ‘blended families’ he also explores what they should consider when planning for the future.

In the run up to Chancellor Rachel Reeves’s first Budget, MacKinnon says: “There has obviously been huge speculation, probably more than any Budget I can think of in my lifetime. We’ve been looking at it mainly from a tax point of view and how it could affect our clients.

“Labour has come out and said it won’t raise income tax, National Insurance, or VAT - apart from private schools. Therefore, this really only leaves Capital Gains Tax (CGT) and Inheritance Tax (IHT). While I do think there will be changes to CGT, it might not end up as bad as some people are predicting in terms of an increase.There has been talk of increasing CGT to 40% but I think that would be unlikely without reintroducing indexation relief.”

Turning to IHT, he points out that changes are already planned with a switch from a domicile-based to residence-based system next April, which will impact international clients and their succession planning. MacKinnon adds that pensions are another area where alterations could be made, with rumours of tinkering to pension reliefs.

“With our clients, we’ll need to make sure that any planning that has been put in place is still relevant post-Budget,” explains MacKinnon. “That will depend on the extent of the changes that are made.”

While planning is not always straightforward for any family, there are often further considerations for blended families - when two people come together and bring a child or children from previous relationships. With divorce rates on the rise, it is estimated that one in three families in the UK are blended.

MacKinnon says: “Everybody should be taking advice on their wills, but this is particularly the case for blended families where there can be competing interests. Even if everyone gets on, relationships can change, often when someone dies. I’m aware of that happening with clients over the years.

“It’s therefore very important that clients in blended families take professional advice to protect the interests of their loved ones. That normally requires more complex planning involving trusts which can still be tax efficient and desirable, particularly if the second spouse is younger.

“We see what can go wrong when clients haven't taken advice, or they’ve decided to keep things simple. This approach can lead to complications when winding up people's estates and the disputes that can follow when it’s often too late to do anything about it.”

According to MacKinnon, areas to consider, along with wills, are powers of attorney (POA) and where the priorities are when it comes to money.

“POA is vital to consider because clients in blended families need to think about who they would want to make decisions if they were unable to do so regarding their finances, their welfare and the ability of people to act together. All that will depend on relationships and where the power sits. Clients need to understand their options in the appointment of attorneys,” explains MacKinnon.

While he says that transparency is generally something to be encouraged, it will depend on the circumstances of the specific family.

He says:“Some clients feel they can’t be transparent about things and will not want to disclose what planning they have carried out, and that doesn’t just include blended families. It could be clients with estranged children, for example.”

The overriding message for all families, but particularly blended ones, is to put the likes of a POAs and other well thought out plans in place to avoid disputes between competing interests in future.

MacKinnon points out that another significant minority of the population who should spend time planning are cohabitants - those who live together but aren’t married - who don’t have children.

“Different succession issues can arise for people in that position, particularly surrounding tax. There is a danger of cohabiting couples suffering double taxation if they don't take proper advice on how to structure their estates,” he says.

Within the last year changes have been included in the Trusts and Succession (Scotland) Act 2024 which is designed to modernise the law on trusts, succession and executors. But the Act could also impact those who are cohabitating and have no children and who die without having a will - “intestate”.

“There has been a lot of discussion around what could be called unintended consequences of the changes on cohabitants,” says MacKinnon. “So people in that situation should make sure a well-drafted will is in place.”

To conclude, while some groups - such as those in blended families or cohabiting couples -need to prioritise succession planning, the best approach is for everyone to take advice to ensure they have plans in place that are up-to-date to avoid any nasty shocks in future.

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