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On October 30, 2024, Chancellor Rachel Reeves presented the Autumn Budget, which included important adjustments to the UK’s Capital Gains Tax, Inheritance Tax and Unused Pension Funds, affecting both individual taxpayers and the management of private estates.
The Finance Bill 2024-25 introduces new CGT rates, effective for disposals made on or after October 30, 2024:
Basic Rate Taxpayers: The CGT rate for basic-rate taxpayers will rise from 10% to 18%.
Higher Rate Taxpayers: The rate for higher-rate taxpayers will increase from 20% to 24%.
Trustees and Personal Representatives: For gains accruing to trustees and personal representatives, the rate will also go from 20% to 24%.
Additionally, the annual CGT tax-free allowance (Annual Exempt Amount) will be halved from £6,000 to £3,000 for individuals and reduced to £1,500 for trustees as of April 2024. This reduction will bring more taxpayers within the CGT scope, as even smaller gains may now be taxable. Residential property disposals remain taxed at the existing rates of 18% for basic-rate and 28% for higher-rate taxpayers.
These changes mean that capital gains on lower-value assets, which may have previously fallen below the exemption threshold, will now be taxable for many more people. With the reduced exemption limit and increased rates, individuals, estates, and trustees will need to consider new strategies for managing tax liabilities on their assets.
While Capital Gains Tax changes take effect immediately, the current Inheritance Tax (IHT) allowances will remain fixed until 2030.
Currently, individuals benefit from several tax-free inheritance allowances:
£325,000 nil-rate band: This allowance can be applied to any assets transferred upon death. It also covers lifetime gifts up to £325,000, provided they are made at least seven years before death to avoid IHT.
£175,000 residence nil-rate band: An additional allowance applies to those passing a main residence to direct descendants.
Transferable allowances: Any unused portion of the nil-rate or residence nil-rate band can be transferred to a surviving spouse or civil partner.
Fixing inheritance tax thresholds is set to affect all taxable estates anticipated to owe inheritance tax in the 2028–2029 and 2029–2030 tax years. Under the current policy of maintaining fixed thresholds, the number of taxable estates is expected to increase by an estimated 1,400 in 2028–2029, and by approximately 2,900 in 2029–2030.
Chancellor Rachel Reeves introduced a new cap on Bursiness Property Relief (BPR) and Agricultural Property Relief (APR), which are now limited to £1 million per taxpayer. Any value exceeding this threshold will be taxed at 20%. This marks a shift from the previous relief structure, where these assets could benefit from up to 100% relief, allowing them to be passed down largely free of IHT.
Another notable change affects non-listed investments, including Alternative Investment Market (AIM) shares, which will now qualify for only 50% relief, leaving the remaining value subject to a 20% IHT rate. Unlike BPR and APR, AIM shares will not be eligible for the £1 million cap as a deduction, tightening the tax treatment on these investments.
These measures are expected to reshape estate planning and tax strategies for many UK families and business owners, as the new caps and limits increase potential IHT liabilities for estates holding significant business, agricultural, or non-listed assets.
The government recently announced significant changes to the treatment of unused pension funds and death benefits, aiming to bring these assets into the scope of Inheritance Tax (IHT) from April 6, 2027.
Under the current system, unused pension funds and discretionary death benefits are exempt from IHT, allowing individuals to pass on these funds tax-free to their beneficiaries. This provision has made defined contribution pensions a popular tool in estate planning, enabling individuals to protect their pension savings from IHT.
With the proposed 2027 changes, however, most unused pension funds and death benefits will be included in the estate’s taxable value. This adjustment could impact estate planning considerably, prompting individuals to reassess retirement savings strategies. For those looking to manage potential IHT exposure, this shift may encourage exploration of alternative, tax-efficient investment vehicles.
If you would like more information, please contact Natalia Kusnierz by contacting her at our Carter Lane office on 020 8774 9686 or on email at natlia.kusnierz@taylor-rose.co.uk. For more information on our Wills, Trust & Probate team, please click here.
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Natalia is currently undertaking her final year law degree at University of Essex.
She has recently joined Taylor-Rose's Personal Injury department as a paralegal and is hoping to become a trainee over the upcoming years.
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