The Autumn Budget is set for 30 October 2024. Prime Minister, Sir Keir Starmer, is already on record as saying that it is going to be “painful” and that “those with the broadest shoulders should bear the heavier burden”. These are uncertain times, but it is more likely than not that the existing tax regime is going to change. So, what could this mean for private clients and their businesses, and what tax changes might we expect? In this article, we focus on the two main capital taxes – Capital Gains Tax (CGT) and Inheritance Tax (IHT).
There has been much speculation about CGT rate increases (including a possible alignment with income tax rates – a potential jump from 20/24% to 45% for higher rate taxpayers).
The government could also look to remove or restrict the rebasing of assets on death, and it remains to be seen whether CGT related reliefs, holdover relief, rollover relief, and Business Asset Disposal Relief – are amended or restricted.
The government will be aware that any potential changes would need to be balanced with the risk of disincentivising long term investment and entrepreneurship. Significant rate increases could also have an adverse effect on the overall tax take, if individuals decide not to realise gains. For this reason, a relatively modest rate increase (or a phased increase) may be the most likely outcome at this stage.
With an eye on these potential changes, many private clients and business owners have been looking to crystalise gains before the Budget to “lock in” existing rates. However, any action should be very carefully considered; planning of this nature is best carried out as part of a well thought through estate planning strategy, and not as a tax-driven “knee jerk” reaction to what may or may not happen in the Budget. IHT There was only one mention of IHT in Labour’s election manifesto, which promised to end “the use of offshore trusts to avoid IHT”.
There was only one mention of IHT in Labour’s election manifesto, which promised to end “the use of offshore trusts to avoid IHT”. Potential changes to the “non dom” tax regime have been well publicised.
There is also uncertainty about the future of Business Property Relief (BPR) and Agricultural Property Relief (APR), much of which has been generated by a 2024 IFS report which suggested capping those reliefs at £500,000 per individual.
It remains to be seen whether the government explore this suggestion – if they did, it would have a profound effect on business owners, rural businesses, and Landed Estates. With rural businesses already operating within a challenging and evolving marketplace, it will be important for the government to balance any tax changes with the need to kickstart economic growth.
Indeed, there are longstanding policy reasons supporting the existence of these reliefs, and the government would need to consider carefully whether changes of this nature (which may be seen to disincentivise entrepreneurialism) would actually result in an increased tax take. The government may instead decide to tighten eligibility requirements for relief, potentially for AIM investments or qualifying criteria for let farmland or businesses, which are not purely trading.
There is ongoing speculation over the tax treatment of pensions for IHT purposes, and whether ultimately, they could be brought within the IHT net. It is increasingly likely that we will see some changes to the regime in this area.
Private clients are also exploring alternative methods of implementing their estate and succession plans; we have noticed an increase in the use of Family Investment Companies (FICs) as a vehicle to launch and manage long term succession strategies, including in a Landed Estate context.
Long-term decisions in relation to estate and succession planning should not be made in haste, and tax should not be the only driver. These decisions can have wide ranging consequences and require careful thought. We do not know what changes to the tax regime may come, and when.
As the government’s tax policy starts to become clearer over the coming weeks and months, it will be important for private clients and businesses to reconsider their estate planning strategies. Having a well-defined succession plan can be extremely valuable and could help families and businesses navigate what may be a rapidly changing tax landscape.
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