LCA’s analysis of The Autumn Budget 2025 summarises the fiscal measures introduced and carried forward and delves into the impact on LCA and its customers. Find out more in this article.
Introduction
The Autumn Budget 2025 has been framed as “fair taxes, strong public services, and a stable economy”, prioritising fiscal stability, raising significant revenue through structural tax changes rather than headline rate increases. This analysis summarises the fiscal measures introduced and carried forward (from 2024) and delves into the impact that they may have on London & Colonial Assurance PCC Plc’s (‘LCA’s’) and its customers. This document should be read in conjunction with the following:
1. LCA Autumn Budget 2025 Review Summary
2. LCA Updated Legal Opinion 2025 (Summary and Commentary)
Note: This analysis does not constitute financial, tax or legal advice and readers should avail themselves of professional advice.
Executive Summary
• From 2027: Unused Pension Funds will be included in IHT calculation – augurs well for LCA.
• From 2026: Agricultural Property and Business Relief (‘BR’) to have a cap of 100% for the first £1m of combined qualifying assets, 50% on value of assets above the cap- LCA’s Preference Share will continue to qualify for 100% BR on the first £1m and 50% thereafter.
• Until 2031: Nil Rate Bands frozen -more estates dragged into IHT net- augurs well for LCA.
• Until 2031: Personal Income Tax thresholds frozen – causing fiscal drag as wages rise to keep pace with inflation but not accompanied by increase in tax-free thresholds- individuals will be looking for ways to get the most out of their disposable income
• Between 2026 and 2028: Rises in Income Tax on Dividends, Savings, Property plus new high value Council Tax Surcharge –LCA’s unit-linked solutions mitigate these tax rises.
LCA
LCA is structured as a Protected Cell Company (‘PCC’) governed by the provisions of Gibraltar’s Protected Cell Companies Act 2001 (‘PCC Act’). This enables LCA to establish ‘Cells’ for the purpose of segregating and protecting cellular assets in a manner provided for by the PCC Act. LCA holds a Branch Passport, allowing the firm to provide financial solutions via a physical presence in the UK, to UK-residents. Under the Financial Services Act 2019 (Gibraltar), LCA is regulated by the Gibraltar Financial Services Commission (‘GFSC’) with Incorporation Number 80650. In the UK, LCA’s activities are overseen by the FCA under Registration Number 207633.
LCA’s Flexible Annuities:
1. The Flexible Pension Annuity (‘FPA’) which is a lifetime annuity, purchased with an individual’s pension assets saved in a registered pension scheme (crystallised pensions but not Pension Commencement Lump Sum). Pension transfers are available via Origo.
2. The Flexible Life Annuity (‘FLA’) which is a purchased life annuity (‘PLA’) bought with an individual’s personal funds (savings or investments).
3. The Later Life Account (‘LLA’) which is also a PLA purchased with personal wealth, designed for individuals who are saving towards anticipated Long-Term Care costs.
LCA Preference Share
At the time of purchase of any of LCA’s flexible annuities, the annuitant has the option to purchase a Preference Share in LCA. The Preference Share is linked to their allocated Cell, which is used to hold the assets that back their flexible annuity. The Preference Share enables any residual balance in the annuitant’s Cell to pass to their estate upon their death. This means that when an annuitant dies, their cellular assets, plus any investment income earned and the value of the Preference Share are not retained by LCA but are passed to their estate for Probate. It must be clearly noted that the purchase of an LCA Flexible Annuity is a completely separate commercial transaction from the purchase of the Preference Share. The Preference Share must be purchased from cash or cash in bank. In the case of the FPA, the Preference Share cannot be purchased from pension assets.
LCA Target Market
LCA’s financial solutions are designed for mid to high-net-worth individuals (‘HNWI’) who are likely to demonstrate the following characteristics:
• Net Worth: £250k+ in investable assets (excluding primary residence). Overall estate includes inherited wealth and/or accumulated from professional career/ business ventures and pensions.
• Diversified Asset Base: Holdings in equities, bonds, property, private equity, and alternative investments-characteristic of HNWI.
• Liquidity vs Illiquid Assets: Significant portion in illiquid assets (property, businesses) but maintain liquidity for business opportunities- characteristic of HNWI.
• Multiple Income Streams: Business ownership, investments, dividends, rental income, and not uncommon, executive salaries- sizeable pension pots.
• Tax Exposure: Higher exposure to income tax, CGT, IHT, and property-related levies -applies to both mid and HNWI.
Impact Analysis of Fiscal Measures
• Inheritance Tax: Nil-Rate Bands
The nil-rate band will remain frozen at £325,000 until 2031. It is expected that more estates will be dragged into IHT as property values rise. This will have a greater impact on LCA’s mid net-worth customers. Financial, tax and legal advice become even more critical as individuals navigate the remaining available IHT mitigation tools, including lifetime gifting, trusts, and BR.
• Inheritance Tax: Unused Pension Funds and Death Benefits
The government is set introduce legislation in the Finance Bill 2025-26 which will bring most unused pension funds and pension death benefits within the value of a person’s estate for IHT purposes commencing 6 April 2027. The objective of this policy measure is to remove the distortion which has led to pension schemes being increasingly used and marketed as a tax planning vehicle to transfer wealth, rather than for funding retirement. This fiscal measure creates an opportunity for individuals whose assets, including pension funds, exceed the IHT nil-rate band. The FPA may enable them to lift their pension assets out of their estate. Should they die prematurely, having purchased a Preference Share in LCA, any residual funds in their Cell will pass to their
taxable estate and those funds may qualify for BR. The purchase of the Preference Share does not confer a death benefit to the beneficiaries of the annuitant. When compared to traditional guaranteed annuities where any unused annuity fund is retained as profit by the insurer, LCA’s proposition far exceeds any retirement solution in the current annuity space.
• Inheritance Tax: Agricultural Property Relief and Business Relief
It is proposed that from 6th April 2026, BR will be limited to 100% for the first £1 million of combined agricultural and business property. The rate of BR will be 50% thereafter. For shares designated as ‘not listed’ on the markets of recognised stock exchanges, such as AIM, BR will be limited to 50%. As LCA is an unlisted trading company, its Preference Share will continue to enjoy 100% BR for cellular assets up to £1 million (assuming no agricultural property relief) and 50% on any assets in excess of £1 million. Any unused portion of the £1 million allowance can be transferred to a surviving spouse or civil partner, even if the first death occurred before 6 April 2026. The £1 million cap for 100% BR will remain fixed until the 2030/31 tax year, after which it will be indexed to Consumer Price Index. This means the full allowance is maintained for an extra year (April 2030 to April 2031). Under current IHT legislation (and until 05 April 2026), if the Preference Share has been owned for at least two years at the date of the annuitant’s death, the value of the Preference Share plus the residual balance in the allocated Cell would qualify for 100% BR.
Impact Analysis of Fiscal Measures (Continued)
• Personal Tax
The personal income tax and equivalent national insurance thresholds are to be maintained at current levels for a further three years until April 2031. This will likely cause fiscal drag because as incomes rise to keep pace with inflation, more earnings will fall into higher tax bands without any increase in thresholds. The effective tax burden will rise significantly for mid to HNWI and business owners.
• Other Taxes
-
- Dividend Income: Increased tax rates on dividend income by 2ppts at the ordinary and upper rate from 6 April 2026.
- Savings Income Tax: Increased tax rates on savings income by 2ppts at the basic, higher and additional rate from 6 April 2027.
- High Value Council Tax Surcharge: Introduction of a surcharge on owners of residential properties valued over £2 million in England from 1 April 2028.
- Tax on Property Income: Separate tax rates for property income. From April 2027, the property basic rate will be 22%, the property higher rate will be 42%, and the property additional rate will be 47%. This signals an increased annual cost for prime property owners, especially in London and the Southeast.
- Dividend Income: Increased tax rates on dividend income by 2ppts at the ordinary and upper rate from 6 April 2026.
LCA’s Key Selling Points
LCA’s Flexible Annuities address many of the shortcomings prevalent in both the annuity and investment sectors respectively through:
• Payment Flexibility: The ability to increase, decrease, pause, and restart payments depending on annuitants’ individual circumstances is becoming increasingly important for individuals. Annuitants can also work with advisers to time withdrawals/annuity payments to ensure tax efficiency. This becomes even more critical for customers given the fiscal changes introduced in the Autumn Budget 2025.
• Open Architecture associated with the unit-linked feature of LCA’s Flexible Annuities. LCA offers customers a comprehensive Permitted Investment List (‘PIL’) (note real estate falls outside the PIL) in which in-specie transfers are allowed. Also, given the tax favourability of Gibraltar as a jurisdiction, policyholders’ investments benefit from gross roll-up. There is real potential for growth in an annuitant’s initial premium. All LCA customers work alongside an Investment Adviser, Investment Manager or Discretionary Fund Manager to achieve the best returns on their investments. Again, given the fiscal changes introduced in the Autumn Budget 2025, this becomes even more critical for mid to HNWI who want to maximise their investment returns.
• Top-ups: Unlike guaranteed annuities, LCA’s flexible annuities can be topped up. Therefore, should an annuitant wish to draw down their pension assets in a phased, timed basis, they do not need to apply for a new FPA. Equally, if an existing FLA or LLA annuitant wishes to move personal wealth from other investments (as a result of rising taxes on investments proposed in the Autumn Budget 2025), they are allowed to top up their original annuity. This flexibility will continue to be a key consideration for customers when it comes to their investment and estate management strategies.
• The absence of full underwriting is favourable to annuitants as they do not have to wait (sometimes months) for medical evidence to be sourced in order to price and commence their annuities.
• The jurisdictional advantages of LCA operating out of Gibraltar, including PCC structure and its associated benefits, the 100% FSCS protection for LCA’s Flexible Annuities and the triple regulatory oversight by the FCA, GFSC and Solvency II Directive.
Nota Bene:
Enhancing HMRC’s powers and sanctions against tax adviser facilitated non-compliance
One of the qualitative measures proposed in the Autumn Budget 2025 is that from 1 April 2026, the government will introduce enhanced powers and sanctions to tackle tax advisers who facilitate non-compliance. This will be legislated for in the Finance Bill 2025-26. HMRC are acutely aware, given the Pension IHT changes, the changes to BR and increases in taxes on savings and investments, that individuals will be looking for ways to reduce their tax liabilities, especially IHT. Emphasis is being placed on quality of tax advice. Given the Key Selling Points of LCA’s financial solutions, there is the risk that LCA’s annuities may be seen as a way to preserve a lump sum, shielded from IHT. This is likely to draw scrutiny from HMRC if a trend of sizeable BR applications develops post 2026. As per LCA’s updated legal counsel, this is likely to have a negative impact on the annuitant’s estate, the financial and tax adviser, and LCA. Nevertheless, as also reaffirmed in the updated KC opinion, LCA annuities remain a viable and valuable retirement solution should they be utilised in the manner and for the purpose for which they were designed. In fact, the value of LCA’s Flexible Annuities has been enhanced by the Autumn Budgets of 2024 and 2025.
In the Final Analysis
Mid to HNWIs face a multi-front tax squeeze with higher effective income tax via fiscal drag, increased taxes on investment income, property, and capital gains and new recurring property charges and reduced tax-free savings options.
Proactive wealth planning is critical: timing disposals, restructuring assets, and maximizing tax-efficient vehicles before deadlines. A closer working-relationship between adviser and client is key to better understand individual client circumstances, risk appetites and cash flow needs. LCA is ever more poised with financial solutions that meet these new and existing challenges. It is expected that both conventional annuities and flexible annuities will once again become more attractive, especially as the annuity sector has seen a recent resurgence in sales volumes. The attractiveness of these financial solutions will further be enhanced by the fiscal measures introduced in the Autumn Budget 2025. LCA is in a unique and advantageous position to capitalise on these proposals given the Key Selling Points enjoyed by the company’s financial solutions, which cannot be easily replicated.
If you’d like to download this article as a pdf, please click here.
