Rachel Reeves delivered a highly-anticipated first Labour budget in 14 years yesterday (30/10/24)
As part of a plan to ‘rebuild public services’, Reeves announced a number of changes to tax rates and thresholds.
The announcements include changes to Capital Gains Tax (CGT), Inheritance Tax (IHT) and Stamp Duty Land Tax (SDLT), with some coming into force with immediate effect, and others delayed.
Frettens’ resident Chartered Tax Advisor, Lee Young, is one of a few solicitors in Dorset to be dual qualified as a Solicitor and Chartered Tax Advisor. In this article, he provides a summary of the budget’s tax implications.
Is Capital Gains Tax going up?
With effect from today (31st October 2024), disposals of all chargeable assets (except carried interest rights) will be taxed on individuals at the rate of 18%, if the gain falls into the basic rate band, and 24%, if the gain falls into the higher rate band.
Also, with effect from today, all gains by personal representatives (PRs) and trustees (again, except carried interest rights) will be taxed at 24%.
Business asset disposal relief (on the first £1m) on the disposal of business assets will remain taxed at 10% until 5 April 2025.
From 6 April 2025 the rate will rise to 14%, and then to 18% from 6 April 2026.
What do these changes mean?
Managing Partner Matthew Fretten says: “Our corporate and commercial team have been busy in the weeks leading up to this budget, amidst speculation about these changes.
Now that we have some certainty around changes to Capital Gains Tax and Business Asset Disposal Relief, we anticipate the next five months to be a very busy period for the department.”
Related: How to groom a business for sale
What has happened to stamp duty in the budget?
In the budget, it was unveiled that the second home surcharge is increasing from 3% to 5% on transaction effective dates on or after 31 October 2024.
For properties exchanged before this date which complete after this date the old rates will apply, except in limited circumstances. This rate is payable by individuals and also trustees of formal settlements if the life tenant has another property, or the settlement is a “relevant property trust”.
On company purchases in excess of £500,000, on transaction effective dates on or after 31 October 2024, the rate is increasing from 15% to 17%.
The Stamp Duty ‘Holiday’, where purchasers pay 0% SDLT on the first £250,000 of their purchase, is still coming to an end on 1 April 2025 as planned. So, from that date, the 0% band will only apply to the first £125,000 of purchase price.
Related: What is Stamp Duty and what are the current rates?
Did inheritance tax change in the budget?
The major tax changes included in the budget are as follows.
Nil Rate Bands
The Nil Rate Band (NRB), Residence Nil Rate Band (RNRB) and taper threshold for RNRB purposes will now remain unchanged now until the end of the 2029/2030 tax year.
The 40% rate has (surprisingly) not increased, and therefore nor has the lifetime rate of 20% or the relevant property trust rate of 6%.
Agricultural Property Relief
From 6 April 2025, Agricultural Property Relief (APR) will extend to include land managed under an environmental agreement with the UK government.
From 6 April 2026 there is to be a cap on the 100% limit on the combined value of APR and Business Property Assets (BPR) assets (ignoring shares not on a recognised stock exchange).
The first £1million of value will benefit from 100% relief, APR and BPR assets in excess of this value will benefit from a 50% relief.
Tax on Shares and Trusts
Shares not on a recognised stock exchange (generally, for our purposes, AIM shares) will only benefit from a 50% relief from 6 April 2026, irrespective of their value.
Trusts set up prior to 31st October 2024 will each benefit from a full £1 million 100% allowance. For trusts set up from today onwards, that 100% allowance would be split between them.
“We anticipate many of our clients will be in touch in the coming weeks if their estates involve ABR or BPR assets.” says Lee Young.
“The team is advised on the changes and are ready to advise on what, if anything, clients should be doing to update their wills.
Please don’t hesitate to pick up the phone or drop us an email if you’d like to discuss your estate or tax planning.”
Related: Updating Your Will - When, Why and How?
Pensions and inheritance tax
Some major changes were introduced, which will have wide and far-reaching effects.
From 6 April 2027 the unused pension funds/death benefits payable at the discretion of the pension trustees will fall into the IHT net.
The government is consulting on the mechanics of how this will work in practice, but the initial idea is that the pension scheme administrators will be responsible for paying the tax attributable to the pension funds from the pension pot, rather than it being the responsibility of the personal representatives (PRs).
There will clearly need to be communication between the PRs and the administrators to ensure that both sides are aware of the taxable nature of the estate and their respective share of the overall IHT liability, if any.
Naturally, we will keep you updated as more details emerge.
Related: Inheritance Tax - How does it work and can you avoid it?
Pension Spouse Exemption
It would appear that the “spouse exemption”, for example, will apply equally to a pension pot passing to a widow/widower/civil partner as it would to the “free estate” passing in the same way.
“This change could affect a great many of our clients, who might have been under the IHT threshold of say £1million ignoring their pension pots, but now might be over it.” says Lee Young.
“If you feel you may be affected by this change, or would like to discuss it, again, please don’t hesitate to get it touch below.”
Speak to an Expert
Lee Young is both an experienced Tax Advisor and Wills & Tax Solicitor. He adopts a pragmatic and down-to-earth approach to tax and the legal complexities facing his clients, so would be happy to speak to you if you have any questions following this latest Budget.
Lee is recommended in the Legal 500, an independent guide to top lawyers and law firms in the UK, and rated 4.9/5 on ReviewSolicitors, never receiving a review lower than ‘excellent’ or ‘very good’.
To speak to Lee, or a member of the team, call us on 01202 499255, or fill out the form at the top of this page, for a free initial chat.
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