Following the publishing of our 25/26 Tax Planning Document, Nikki Spoor, Travel, Audit and Tax Director at White Hart Associates comments on some of the changes that are coming and what you can do to soften the blow of the recent Autumn Budget.
The autumn budget delivered by Chancellor Rachel Reeves contained a raft of changes on everything from Capital Gains Tax and Inheritance Tax to the rules for non-doms, those UK residents who reside overseas for tax purposes.
Many take affect from the start of the new tax year on 6 April 2025, but can you plan to alleviate the worst impact of the changes? Let us look at the options:
Capital Gains Tax (CGT)
CGT rose to 18% for lower rate tax payers and 24% for higher rate tax payers, to come in line with CGT rates for property sales.
NS Comment: The change took place immediately so there’s no planning that can be done, but at least the rise wasn’t as high as some had feared.
Business Asset Disposal Relief (previously Entrepreneurs’ Relief)
Anyone selling a business can claim Business Asset Disposal Relief of up to £1m over their lifetime, but the rate will rise from 10% to 14% for disposals on or after 6 April 2025. However, from 6 April 2026, it is effectively being abolished as the rate is rising to the CGT rate of 18%.
NS Comment: Anyone who currently qualifies for Business Asset Disposal Relief might want to consider making a disposal prior to the change of rules. If a suitable purchaser cannot be found in time, it may be possible to transfer the business or shares into a trust to claim the higher relief, but tax advice will be needed.
Investors’ Relief
Investors’ Relief encourages investment by reducing the amount of CGT to be paid when disposing of shares in a company not listed on a stock market, but changes are likely to make investing far less attractive.
The lifetime limit was radically reduced from £10m to £1m on 30 October 2024. Furthermore, the rate will increase from 10% to 14% for disposals on or after 6 April 2025. This relief is also being effectively abolished from 6 April 2026, when the rate rises to the CGT rate of 18%.
NS Comment: Although the lower lifetime limit came into force immediately, it may still be an advantage to make disposals prior to April 6 this year or April 6 next year. Again, it may be possible to make the disposal by transferring assets to a trust, but tax advice will be needed.
Agricultural Relief (APR) & Business Property Relief (BPR)
The changes to APR have caused widespread outrage among the farming community, who have argued that they are asset-rich but cash-poor and will have to sell their farms to meet tax bills. Changes to BPR have also been very unwelcome among those wanting to pass on family-owned businesses without incurring crippling charges.
From 6 April 2026, there will be a new cap of £1m for 100% relief, shared between APR and BPR if both are applicable, then 50% relief thereafter. Any tax due can be paid in instalments over 10 years, but interest will apply.
NS Comment: This could this push more people to make lifetime gifts or to share ownership of the farm or business between family members. The £1m exemption is per person, so if a couple own a farm between them, they will have two £1m APR exemptions plus their normal nil rate band and possibly the residence nil rate band. This could mean a total exemption of £3m for a farm owned by a couple, where the farm passes to direct descendants.
BPR on shares
From 6 April 2026, BPR is also being limited to 50% relief for any shares on the Alternative Investment Market (AIM) or similar markets (rather than a full stock exchange).
This was another unwelcome surprise, particularly for anyone who invests regularly in AIM companies. It is also likely to affect packaged IHT saving portfolios, which tend to invest in the AIM market.
NS Comment: It may be worth considering putting BPR shares into trust, which attracts a much-reduced IHT rate of 6%, before the changes take place.
Inheritance Tax (IHT)
The nil rate band has been frozen at £325,000 until 2030, meaning more estates will have to pay IHT for the first time, as property prices increase.
No changes were announced to the seven-year gifting rule, whereby people can gift assets free of IHT provided they live for seven years afterwards and, contrary to media expectations, no gift tax allowance was brought in.
NS Comment: This will encourage people to increase gifting over their lifetime to reduce the value of their estate that will be subject to IHT.
IHT on inherited pensions and death in service benefits
It was a complete surprise to hear that unused pension funds and death-in-service benefits will be subject to IHT for the first time, from 6 April 2027, as they were always considered to be outside an estate.
NS Comment: People may need to review their financial planning, if they had deliberately left funds in their pension to pass IHT-free to their families. It will be particularly unpopular with pension administrators, as they must report to HMRC and pay the IHT due on the pension pot. This also applies to certain offshore pensions, such as QROPS and QNUPS. It may be worth taking as much money out of your pension as possible, as any funds left in the pension may be subject not only to IHT but also income tax in the hands of the recipient. The devil is in the detail, which hasn’t been published yet, therefore careful consideration needs to be given to the planning on this especially for SSAS pensions where linked to family business employers.
IHT domicile changes
A major change from the start of the new tax year is to drop domicile as the basis for IHT and instead look at long-term residence, which is defined as being resident for 10+ years out of the past 20 years.
A new IHT ‘tail’ is very unwelcome for many, as it means clients will remain liable to IHT on their worldwide assets, even when they’ve left the UK, if they were long-term residents when they departed.
NS Comment: This could prompt more people to leave the UK before 6 April 2025, so they are subject to IHT for less time under the current rules.
Non-dom changes
As we were warned, there are major changes coming in from 6 April 2025, to remove the concept of non-domicile, where people can be resident in the UK but living in another country for tax purposes.
Many people expect this to lead to non-doms leaving the UK, rather than paying UK tax on their worldwide income and gains. A new 4-year sweetener, known as the Foreign Income and Gains (FIG) rules, will enable some to delay paying tax, but may not be enough to compete with other countries whose special tax regimes are for longer periods or are more generous.
NS Comment: There can be advantages in long term residents leaving the UK before the rules change at the end of this tax year, as they will be subject to UK IHT for a shorter period than if they left after 6 April 2025. It also avoids the need to claim split-year treatment, where a year is split into two and you only pay UK tax for the time you were here. There has been and continues to be a mass exodus of wealthy mobile residents leaving the UK or planning to leave the UK pre 6 April 2025. Whilst mostly driven by the punitive IHT changes for Non-doms this will also mean paying much lower UK income tax for them by becoming a Non-resident for tax purposes.
Overseas Workday Relief (OWR)
This relief is actually being increased from 6 April 2025, to partly make up for losing the concept of non-domiciled workers. Those who have come to the UK for the first time or have been non-UK resident for at least 10 consecutive years before arrival, will be able to claim tax relief for earnings related to overseas workdays in their first four years of UK residence, up from three years.
NS Comment: It remains to be seen if the extension of OWR and the new 4-year FIG period act as an incentive for people to come to live and work in the UK.
Offshore Trusts
The changes to the rules on non-doms and the move to a long-term residence basis for IHT means that many offshore trusts with UK-based settlors are going to be adversely impacted.
The trusts will effectively be transparent for income tax and CGT, for the settlor, and the IHT charges that previously only applied to UK trusts will now apply to offshore trusts with UK long-term resident settlors.
NS Comment: This will add an additional burden on offshore trustees, who are likely to need to charge more for running any trust with a UK settlor. The fact these rules will apply even when the trust was set up prior to the settlor moving to the UK may feel particularly unfair.
UK Trusts
No specific changes were announced to how UK trusts are taxed, but trusts may be more attractive to people wanting to gain APR or BPR relief before the rules change. Great care is needed, however, to ensure no immediate charge to tax arises on setting up the trust or transferring assets in, and full tax advice should be sought.
NS Comment: Families who might want to start making gifts down a generation, to start saving IHT, can also consider ‘bare trusts’, which transfers the beneficial ownership immediately but doesn’t pass control to the recipient. These are particularly useful to make gifts to minor children or grandchildren but have the disadvantage that the recipient can demand the assets are transferred over to their personal ownership once they reach 18.
Income tax & NIC thresholds
It is good to hear these thresholds will finally be unfrozen and start going up again in line with the Consumer Price Index, but only from 2028/29. This is still somewhat of a stealth tax, albeit with an end in sight.
Stamp Duty Land Tax (SDLT)
The additional SDLT paid on second homes or where companies purchase residential property has gone up to 5% over the standard residential rates.
The new single SDLT rate for ‘non-natural persons’, such as companies, buying any property over £500,000 is now an eye-watering 17%.
There may not be much sympathy for those with second homes, but it will affect the buy-to-let market, and impact situations where a trust is buying a property for a beneficiary to live in.
Supposedly, this is to free up housing stock for main home and first-time buyers, but only time will tell if that works.
NS Comment: The changes came into effect on any purchase on or after 31 October 2024, but it is still worth checking the amount of SDLT due, particularly if any part of the property can be classed as ‘commercial’ rather than residential, or if multiple dwellings relief might apply.
Carried interests
This represents a two-pronged attack on those who work in the finance sector and are given carried interests, which are a share of profits from a private equity, venture capital or hedge fund earned by the fund’s general partner.
First, the rate of CGT is going up from 28% to 32% from 6 April 2025. Second, from 6 April 2026, the intention is to tax carried interests as trading profits, meaning they are subject to income tax rather than CGT.
Certain qualifying carried interests will have a discounted tax rate, as only 72.5% of the profits will be taxed. A consultation is being launched to flesh out the details, such as whether there needs to be a minimum time period or co-investment, where someone invests directly alongside a private equity fund.
NS Comment: This is one to watch, when more details come out in the consultation.
Air Transport Duty
A lighter note to finish on as the 50% increase in duty for private jets that takes effect from 1 April 2026 will probably only hit those who are rich enough not to notice!
NS Comment: If you do notice the change, it may be time to consider switching to ordinary commercial flights.
