The Autumn Budget – 5 considerations in 5 weeks

While ‘tax doesn’t have to be taxing’ it doesn’t stop it being potentially very expensive.

The new Labour Chancellor Rachel Reeves has not shied away from rhetoric regarding ‘difficult decisions’ amid much discussion from her party regarding the economic legacy left to them by the previous government. Indeed, even though the media has reported that there could be some potential fiscal headroom, the Chancellor has continued to highlight the budget deficit and has refused to rule out tax increases in the Autumn budget on 30^th October 2024. This article will consider the potential increases and/or reform to capital gains tax and inheritance tax and 5 things to review in the 5 weeks before budget day.

Capital Gains Tax (CGT)

The current level of CGT might well rise in line with income tax rates and Business Assets Disposal Relief could be abolished completely or changed in some way reduce the level of the relief. This relief is currently restricted to £1 million lifetime allowance and reduces the CGT rate to 10% on eligible disposals. While specific tax advice should be sought from an accountant in respect of CGT, our Private Client Team can draft the legal documentation necessary to avail of this relief before any potential budget changes.

Inheritance tax

The current inheritance tax threshold is £325,000 per individual (called the nil rate band) which rises by £175,000 to £500,000 if an individual leaves their property (up to that value) to direct lineal descendants. This is the amount of qualifying assets an individual can own at their date of death before inheritance tax will be charged. The current rate of inheritance tax is 40%. These reliefs can also be transferred on second death of a married couple. However, any gifts made within 7 years prior to death use up the nil rate band. Certain assets may avail of business relief which essentially allows them to be transferred free of inheritance tax. Certain agricultural assets may also pass free of inheritance tax if they qualify for agricultural property relief.

It is important to note that there have been no specific mentions of changes to IHT in the budget, however, while changes to income tax, VAT, National Insurance or Corporation tax, have been ruled out, the Chancellor has not ruled out changes to the IHT regime and so increases to IHT or reform or reductions in IHT relief might be on the table.

Be prepared

There are some key steps to consider before taking any action to avail of ways to mitigate CGT or IHT prior to the budget:

1. Review your Will to check if it still remains tax efficient in light of any potential changes

together with considering personal assets and whether you would currently avail of any IHT reliefs;

2. Review your business assets. The current inheritance tax rules surrounding business relief are very advantageous and any reform to these in the budget could well have long-reaching implications particularly for family business structures and their succession planning;

3. Review any agricultural assets – again the current reliefs available under agricultural property relief for IHT are very useful for succession planning, however, these reliefs have been tightened over the past number of years and could well form part of any IHT reform;

4. Consider IHT reliefs and where you may be able to benefit from them now. This might involve bringing forward planned lifetime gifting to take advantages of the current reliefs in place;

5. Consider Trusts – While they might not be the correct arrangement for some, for others it is worth considering whether to put a Trust structure in place to take advantage of potential tax benefits. For example, a Discretionary Trust can be particularly useful when considering transferring shares in a business. When assets are transferred into a Discretionary Trust, they are managed by Trustees who make the decisions on whether to continue to hold the assets in trust or make distributions to beneficiaries in the Trust deed. A non-legally binding letter of wishes can also sit along side the Trust deed to aid the Trustees in their management of the assets. There are many potential Trust structures that can benefit an individual’s estate both during lifetime and on death relating to personal assets or business assets, however, legal and tax advice should be sought to assist with decision making.

Summary

While it is impossible at this stage to know what will be in the Autumn budget, the current government have made it clear that they need to raise revenue. This may be in the form of tax rises but may also take the form of a reduction in tax reliefs available particularly on death. While no decisions should be made rashly, you should review your assets noted above and take legal advice on whether any reliefs could be saved now prior to the budget.

If you would like further information, please contact Naomi Lamont or another member of the Private Client team.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.