A Budget of Tax on Wealth

Labour’s first Budget has certainly shaken up many individuals, businesses and Trusts up and down the country. With the aim of increasing taxes to raise £40 billion, Rachel Reeves’ has taken steps which will affect people in many different ways.

Looking specifically at personal taxes, there have been some significant changes to Inheritance Tax (‘IHT’) and Capital Gains Tax (‘CGT’), which have been summarised below:

• The Nil Rate Band for IHT is currently £325,000 for each individual which will remain frozen until 2030, although we do not know at this stage what changes could be made thereafter.
• From 6 April 2026, Business Property Relief and Agricultural Property Relief will only apply at 100% rate for qualifying assets up to a combined allowance of £1m. Anything above £1m will only be entitled to a 50% rate of relief, equating to a 20% effective rate of IHT.
• AIM shares will now only have a 50% rate of relief, but there is no £1m allowance.
• Where an individual settles property into multiple Trusts from 30 October 2024, it is most likely that the £1m allowance for Business Property Relief and Agricultural Property Relief will be split across the Trusts.
• From 6 April 2027, any unused pension funds will be brought into the IHT net. Effectively, if one’s assets on death including unused pension funds exceed the available IHT allowances, then IHT will be payable on the excess with the IHT being apportioned between the estate assets and the pension fund. The Government has announced that IHT on unused pension funds will most likely be paid directly by the pension scheme administrator.
• From 6 April 2025, land managed under environment agreements will be extended.
• Income Tax thresholds will be unchanged with the allowances being reviewed in 2028/2029: the idea is that individuals are dragged into higher rates of tax as a result of inflationary growth in their incomes.
• Asset disposals made on or after 30 October 2024, with the exception of residential property, will face CGT rate tax increases from 10% to 18% (basic rate taxpayers) and from 20% to 24% (higher rate taxpayers). This effectively now brings all CGT rates in line with residential property, which remains unchanged
• There have been no changes to CGT allowances for 2024/2025, which are £3,000 for individuals and £1,500 for Trusts.
• Business Asset Disposal Relief CGT rates will increase to 18% from 6 April 2026; with Investors Relief being brought down to £1m from £10m.
• From 6 April 2025, a new test for non-doms will be based on residence rather than domicile, so it will no longer be possible to use the remittance basis.

What should you do now?

The key message to take away from this Budget is that if there was ever a time to conduct lifetime planning or succession planning, it is now. The need for planning is crucial given the tightening tax regime.

Some people may decide that more generous lifetime gifting is a sensible option, especially where the total value of their estate could now potentially exceed £2m. Taking professional advice on your individual circumstances and options is the prudent next step.

If you would like to discuss your individual circumstances please contact me at our Ely office on 01353 383483, or one of my specialist private client colleagues in King’s Lynn, Downham Market, Wisbech or March.