The Autumn Budget, leading to a Winter of discontent?

Before it was even announced, the Autumn Budget (as set out by Chancellor of the Exchequer Rachel Reeves on 30^th October) was the subject of much debate and conjecture.

Set against the backdrop of the first Labour government in nearly 15 years, and the promises made that out of necessity, some “tough decisions” would need to be handed down, there was a general feeling that a degree of tax reform would be inevitable to kick-start the “national renewal” that the Chancellor promised.

Many of the changes that have been introduced will impact businesses, employers and other larger scale entitles. However, some of the changes will also be felt by the private individual. This article will consider some of the changes introduced and reflect on the planning opportunities that remain for those who wish to structure their estates in an efficient manner.

1. Inheritance Tax (“IHT”);

The Chancellor announced that the Government would extend a “freeze” on the Nil Rate Band threshold for inheritance tax until 2030. This continuity means that the first £325,000 of a deceased individual’s taxable estate will remain IHT free. However, as asset prices continue to rise in line with inflation, ever increasing numbers of estates will exceed this frozen threshold. As such, in real terms, a greater proportion of Estates will fall within the tax-paying bracket.

The Chancellor went on to introduce major reforms in the application of Business Relief (BR) and Agricultural Property Relief (APR). These reliefs had previously provided IHT exemptions for certain agricultural and business assets, designed to protect such assets from having to be sold to fund costly IHT bills. Previously, there had been no “upper limit” on the value of these exemptions. However, from April 2026, the 100% rate of relief for assets that qualify for APR and BR will only be available up to a threshold of £1 million. Beyond that threshold, any qualifying property can only avail of relief at a reduced rate of 50%. This change has drawn criticism from those involved in business and the agricultural community, with NFU Mutual estimating that nearly half of all working farms will be negatively impacted by the new tax rules.

Possibly even more alarming are the changes announced for unused pension funds. Prior to the Budget, unspent pensions could be left on death without creating any liability to IHT (irrespective of the value of funds involved). However, from April 2027, whilst it will still be possible to leave pension funds to a spouse or civil partner without giving rise to a tax charge, if a pension fund is left to any other party the value of same will potentially be taxable. Considering the frozen Nil Rate Band thresholds, this will likely cause greater tax burdens for many estates.

1. Capital Gains Tax (“CGT”);

This tax (which is charge on the increase in value of an asset between acquisition and disposal) has also seen some degree of change.

Higher Rate taxpayers have seen an immediate increase in the rate of CGT from 20% to 24%, whilst Basic Rate taxpayers have seen an increase from 10% to 18%. The rate of CGT payable by Trustees will also increase to 24%.

Gains realised on the sale of Residential property will continue to be taxed at 18% and 24%. The annual exemptions for gains realised in any individual tax year (£3,000.00) have also remained unchanged.

1. Stamp Duty Land Tax (“SDLT”);

This tax is payable upon the acquisition of property for valuable consideration (eg: purchases, rather than gifts). The changes introduced by the Budget will impact on those persons who already own a property, which they use as their main residence, and wish to acquire additional properties (such as rental properties or holiday homes.

Effective from 31 October 2024, those who wish to purchase additional properties will face an SDLT surcharge, as the higher rates Stamp Duty Land Tax charge will increase from 3% to 5%. In real terms, it means that to purchase an additional property costing £300,000 will incur an extra £6,000 in tax.

It is likely that the true impact of these changes will only be felt in the coming weeks and months, as the revised reliefs and exemptions are tested and explored. However, certain fundamental steps can still be taken, that will allow individual taxpayers to structure their personal financial affairs a tax-efficient manner:

1. Ensure that your Will remains up to date, and is structured in such a way as to make use of the exemptions that are available and can be claimed;
2. Consider the structure of ownership of your assets. If it is best to undertake any IHT planning steps earlier in life, rather than relying on Tax exemptions on death, put these plans in place as soon as it is prudent to do so;
3. Consider the best use for your pension fund. It may be that withdrawing the tax-free lump sum (if available) during your lifetime and passing this on by way of a gift, rather than the fund being kept intact and charged to IHT on death, may be a useful tax planning option;
4. Whilst Inheritance Tax, Capital Gains Tax and Stamp Duty Land Tax will remain relevant for assets placed within a Trust, subject to an individual’s circumstances the use of a lifetime Trust as a tax-planning tool could permit a substantial saving.

Carson McDowell’s Private Client team have experience in a wide range of Estate Planning matters, and can assist with any planning and advisory steps that may be appropriate for you. We regularly work alongside other trusted professional advisors, accountants and tax planning professionals, seeking to ensure that your affairs are structured with your preferred outcomes in mind.

If you would like further information, please contact Andrew Davison 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.