The Labour party announced their first budget in 14 years last week, featuring a raft of changes said to ensure those with the “broadest shoulders should bear the heaviest burdens”. The £40 billion additional taxes announced in the budget include significant changes to Inheritance Tax (IHT) and Capital Gains Tax (CGT).
Changes in Inheritance Tax for business and agricultural assets>
Labour announced that the first £1m of combined business and agricultural assets will continue to attract no inheritance tax at all (in addition to other available allowances), but for assets over £1m, inheritance tax will apply with 50% relief, at an effective rate of 20%. Previously, these reliefs were uncapped.
Many families own farms with significant acreage, which are worth in excess of the £1m cap. If they intend to pass their farm onto the next generation, they may now be subject to IHT.
The National Farmers’ Union described it as a “disastrous budget” for family farms, adding it would “snatch away the next generation’s ability to carry on producing British food”.
We understand the difficulties that come with providing for the nation and appreciate that it is unlikely farmers will have significant liquid assets with which to pay the IHT which may now fall due. That is why we recommend looking at planning opportunities now to ensure the next generation of farmers can farm the land without having to worry about the inheritance tax charges on their predecessors’ death.
Likewise, business owners, especially SMEs, who wish to pass their business onto the next generation will need to consider the implications of the capped business property relief on their succession plans.
Increases in Capital Gains Tax
Capital Gains Tax was also subject to an increase in the Autumn Budget. Although CGT on residential property remained the same, tax on the sale of shares and other assets at a gain has risen from 10% to 18% for basic rate taxpayers, and from 20% to 24% for higher rate taxpayers.
The CGT that applies to the disposal/sale of qualifying businesses (Business Asset Disposal Relief and Investor’s Relief) is also set to increase. It will rise from 10% to 14% for disposals made on or after 6 April 2025, and then from 14% to 18% for disposals made on or after 6 April 2026. Those business owners that are considering a sale in the near future should factor in the increased CGT rates within their plans.
Changes in non-domiciled individuals’ tax
The Government also announced a significant reform on non-domiciled individuals. From 6 April 2025, the ‘non-dom’ status will be abolished and those individuals will be transitioned to a residence-based tax regime – meaning UK residents will pay taxes on worldwide income, removing the remittance basis of taxation.
The regime also means that individuals will pay IHT based on their tax residence rather than their domicile status, which is usually determined by where they were born.
Oliver Simpson, Partner, said “In light of the Autumn budget, we can’t express the importance of considering planning opportunities enough. IHT falls due 6 months from the date of an individual’s death and with interest on unpaid tax high, formulating a strategy for the payment of any IHT becomes pertinent. Fortunately, some changes don’t come into force for at least a year, but is it important to consider planning in good time to take any burden off the next generation and to ensure succession plans can be achieved.“