The Budget & Capital Gains and Inheritance Tax
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There was much speculation about what was to come in yesterday’s budget, particularly around changes to Capital Gains Tax and Inheritance Tax and Rachel Reeves did not disappoint; although many have said the changes themselves are disappointing.
Inheritance Tax (IHT) thresholds frozen
The IHT nil-rate band remains at £325,000, and the residence nil-rate band at £175,000, with no increase until 5 April 2030. Whilst no reduction in the thresholds as feared by some is welcome, the continued freeze of the thresholds will mean that more and more estates will be liable to IHT as the value of assets increase over time.
The residence nil-rate band taper threshold will continue to start at £2 million.
Estates can still transfer up to £500,000 (or up to £1 million for surviving spouses or civil partners) tax-free under the current thresholds.
Capital Gains Tax (CGT) rates increase
Effective for disposals from 30 October 2024, the CGT main rates rise from 10% and 20%, to 18% and 24% respectively.
Disposals qualifying for Business Asset Disposal Relief and Investors’ Relief will see rates increase to 14% on disposals from 6 April 2025 and to 18% from 6 April 2026.
The CGT rates for gains on residential property remain unchanged at 18% and 24%.
Pensions liable for IHT
Beginning on 6 April 2027, unused pension funds and death benefits payable from a pension will be included in estates for IHT purposes. Pension administrators will report and pay any IHT due on these funds. This is a significant change from the current regime and has been criticised as penalising pension savers when historically the tax reliefs on pensions were introduced to encourage individuals to save for retirement.
Agricultural Relied and Business Relief reformed
Starting from 6 April 2026, the current 100% relief will be capped at the first £1 million of combined agricultural and business property. For amounts above this cap, the relief will drop to 50%. There has already been a lot of commentary on this change and the impact it will have on farmers and family businesses in the longer term.
The rate of relief that will apply to all unlisted shares, including those on markets such as AIM, will be reduced to 50% from 100%.
As always, the devil will be in the detail, but what is clear is that these changes will have an impact on a number of people, their estates and the planning that they have already undertaken. STEP have released their initial statement and reaction to the changes in the budget and I am sure there will be a number of representations made by STEP and other professional bodies on the implementation of these changes. However, what is clear is that those who are concerned about the changes should review their affairs with their professional advisors as the detail is revealed to ensure the changes have the least impact possible.
Contact us
Rix & Kay’s specialist Private Client Team provide dedicated Tax Planning guidance and advice to business owners, individuals and their families.
For more information please contact Bruce Clarke via e. BruceClarke@rixandkay.co.uk or t. 01732 440 853.