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October 31, 2024
Alexandra Tingley, Legal Assistant in our Trust Management team, provides a round up of Autumn Budget 2024.
Income Tax
The current Income Tax thresholds will remain frozen until April 2028. The main impact here is going to be the fiscal drag associated with freezing the income bands.
Capital Gains Tax
The headline rate of CGT on non-residential property disposals has moved from 20% to 24%. The basic rate for the same assets of 10% has moved to 18%. Disposals of residential property will continue to be charged at 18/24%.
These rates are the lowest rate of CGT in any of the European G7 and CGT is still going to be a preferable tax to crystalise above Income Tax and IHT in a lot of cases.
Gains from 30 October in 2024/25 will be taxed at a higher rate than those pre-30 October.
Business Asset Disposal Relief (BADR)
BADR (known as Entrepreneur’s relief until 2020) is also changing. This applies to sole trade, shares in a personal company, partnership shares and until April qualifying furnished holiday lets (FHLs).
BADR is also available to trustees of certain trusts (IIPs where the beneficiary is also an employee/office holder of a personal company).
BADR is available on gains up to £1m (the lifetime limit) and whilst this limit is the same post-Budget, the rates will become less favourable over the next couple of years.
From April 2025 the BADR rate is increasing to 14%, then to 18% from April 2026, bringing it in line with the basic rate of CGT. It is still worthwhile to claim it, as for some taxpayers the savings could be £60,000 even when it does reach 2026 rates.
Whilst this is probably not going to be a big issue for estates (it can only be claimed if the deceased made the gains in the year of death), for lifetime planning and transfers of shares in family companies etc, it could be a good opportunity to claim BADR where you can whilst it is still available as we do not know what will happen after April 2026.
For farmers, they could consider gifting a distinct area of the farming operation to claim BADR. This would need to be carefully considered, but it could mean that farming families could pass down a distinct area of their business if appropriate to the next generation of farmers, i.e. arable operations vs livestock operations. With the erosion of APR it may be more favourable than the 20% effective rate of IHT on assets >£1m if they are paying 10/14/18% (particularly with larger estates/farming assets).
Inheritance Tax
Frozen allowances
The current IHT thresholds will be frozen until April 2028, and the Budget extended these to 2030. This will drag quite a few more estates into paying IHT (sources online think around 3% more, so 9% of estates vs the current 6%).
On a slightly separate note, the PET ‘tail’ of 7 years was left alone too.
Business Property Relief (BPR) and Agricultural Property Relief (APR)
From April 2026, relief of 100% will be available on qualifying APR/BPR assets up to the value of £1m. Thereafter, 50% relief from IHT will apply.
AIM* shares will only receive 50% IHT relief from April 2026 too. There is no £1m starting rate for these investments. (AIM* is a sub-market of the London Stock Exchange (LSE), and caters to smaller companies. It has more relaxed regulations and listing requirements than the LSE.)
For those with asset rich/cash poor types of businesses the instalment option will be helpful but the 50% restriction on relief over £1m will be tough for some clients.
Pensions
The published Budget document states that “the government is bringing unspent pension pots into the scope of IHT from April 2027”.
There are going to be concerns about how this will inflate estates and reduce the Residence Nil Rate Band (RNRB). If pensions drag estates into the >£2m bracket, the abatement of the RNRB will be a secondary impact of this measure and the effective rate of tax on sums over £2m will sit at 60%. If estates are passing to chargeable beneficiaries, they will want to avoid this.
It also appears that IHT on pensions will operate differently to other assets.
See below a consultation open until 22 January 2025 which welcomes opinions on the proposals: