After months of speculation, the new Chancellor has delivered her first Budget. The Government did commit to their pledge of not increasing income tax, VAT, or National Insurance contributions for workers, but there were definitely some interesting changes to Capital Gains Tax (CGT), Inheritance Tax (IHT) and Stamp Duty Land Tax (SDLT).
Whilst some tax rates have increased and certain reliefs have been restricted, the changes announced in this Budget seem less painful than expected. In particular, while the rates for CGT have increased, we anticipate that most people will be relieved the new rates have remained lower than the higher income tax rates.
Nonetheless, we understand you may be concerned about what the changes announced on 30th October mean to you and your family. As such, we have summarised the main personal tax changes below.
Capital Gains Tax
Before the day of the Budget the main rate of CGT was charged at 10% (basic rate) and 20% (higher rate). From 30th October, the Government has declared that the basic rate and higher rate will increase to 18% and 24% respectively, in line with the current rates on the sale of residential properties.
The Chancellor has also announced a change in the rate of Business Asset Disposal Relief (BADR) which is currently 10% on the lifetime limit of £1 million. This relief applies to certain disposals by employees and directors in their unlisted businesses. From 6 April 2025, this will increase to 14% and will then be increased further from 6 April 2026 to be brought in line with the lower main rate of 18%. The £1 million lifetime limit for BADR will remain the same.
These changes in the rate will also be mirrored for Investor’s Relief, which is similar to BADR but applies to investors who are unconnected with the business. It has been confirmed that the lifetime limit of £10 million for Investors’ Relief has been reduced to £1 million from 30th October.
The Government are reviewing how private equity carried interest is taxed. From 6 April 2025, carried interest will continue to be taxed as a capital gain but at an increased rate of 32%. From April 2026, we understand that all carried interest will be treated as income, but within a new bespoke tax regime.
Pensions
We were anticipating changes to income tax relief available on personal pension contributions but, fortunately, these changes were not implemented. Instead, the Chancellor has announced that from 6 April 2027, most unused pension funds and death benefits will be deemed to be part of a person’s estate for IHT purposes. The pension scheme administrators will become liable for the reporting and paying any IHT due from the scheme funds.
The details of these rules are not fully known, if there is to be an interaction with income tax due on pensions where the deceased did not draw their pension by their 75 birthday an overall tax rate of 85% could arise – we hope that this will be ironed out before the new rules are introduced in 2027.
We would recommend that you take independent financial advice before making any decisions on withdrawing funds from your pensions; any action should be part of your overall financial plan and should not be merely based on proposed tax changes.
Inheritance Tax
Agricultural and business property have for many years benefited from a favourable IHT treatment, attracting relief of either 50% or 100% of the value of the assets, as a result paying little or no tax. This Budget introduces significant changes to reform these reliefs.
From 6 April 2026, only the first £1 million of combined agricultural and business property will be eligible for relief at 100%, relief on any amount beyond this threshold will be reduced to 50%. This allowance cannot be transferred between spouses.
In addition to £1 million BPR/APR allowance there will be a specific relief for qualifying quoted shares designated as “not listed” on the markets of recognised stock exchanges, e.g. AIM shares, these will be eligible for relief and taxed at 20% from April 2026.
Complex rules have also been introduced to determine the eligibility for relief for business and agricultural assets held in trust. The Government will be publishing a technical consultation in early 2025.
Trusts set up before 30 October 2024 owning qualifying business and/or agricultural property from 6 April 2026 will have their own £1 million BPR/APR allowance eligible for 100% relief. For new trusts created from 30 October 2024 a single trust allowance will be available and this will be divided between all relevant trusts created from that date by any individual.
The Chancellor announced that the current Nil-Rate Band and Residence Nil-Rate Band will be set at their respective current rates of £325,000 and £175,000 until 5 April 2030. The Residence Nil-Rate Band taper will continue to start at £2 million.
Other taxes
The Government have confirmed that they will not change the main rate of VAT and the threshold will remain at £90,000. As anticipated, VAT will be charged on private school fees at 20% from 1 January 2025. Draft legislation currently suggests VAT will be charged on fees paid on or after 29 July 2024 if they relate to terms starting from 1 January 2025, due to anti-forestalling provisions.
From 31 October 2024, the higher rate of SDLT on additional dwellings will increase from 3% to 5%.
It has also been announced as part of the Budget an increase to the late payment interest rate charged by HMRC on unpaid tax liabilities by 1.5 percentage points, to Bank Rate plus 4 percentage points. Based on current interest rates this would take interest due up to 9% of any unpaid liability. This measure will take effect from 6 April 2025.
What now?
The government is still consulting on the detail of some of these changes, however their impact could be very significant for you. The majority of people will be affected by at least some of these changes and the landscape of any planning previously completed has been altered substantially.
If you missed our latest Budget event, you can watch the recording of our seminar and view the latest report here.
If you would like to discuss how these changes might affect you, please get in touch with our team.
This article was correct at time of publication.
