The Autumn Budget: Changes to Capital Gains Tax and Inheritance Tax
Following today’s highly anticipated Autumn Budget announcement, the key changes to Capital Gains Tax (CGT) and Inheritance Tax (IHT) have been announced as follows.
Capital Gains Tax
The Government are to increase the lower rate of CGT from the current 10% to 18%, and from 20% to 24% for higher rate taxpayers. However, they are maintaining the current rates in respect of residential property (at the lower rate of 18% and higher rate of 24%).
The Government also announced that they are maintaining the lifetime limit at £1 million for Business Asset Disposal Relief. This relief will be maintained at its current rate of 10% this year, increasing to 14% in April 2025 and 18% from 2026/27.
Inheritance Tax
The Government are to extend the freeze on IHT rates brought in by the previous government until 2030. This means that the first £325,000 of an estate continues to be tax free, increasing to £500,000 where a person is leaving their home to their direct descendants (children or grandchildren), and rising to £1 million where a tax-free allowance is passed to a surviving spouse or civil partner.
From 2027, inherited pensions are to attract IHT. This will be a huge blow to many people who have spent years investing their earnings in pension vehicles as a legitimate Inheritance Tax planning mechanism.
The Government are also to reform Agricultural and Property relief.
From April 2026, the first £1 million of combined business and agricultural assets will continue to attract no IHT. However, for assets over £1 million, IHT will apply with 50% relief at an effective rate of 20%. Again, this fundamental change in how farming families and families with businesses are treated will have a real impact on many of our clients.
The Government have also committed to a 50% relief in all circumstances for shares on the Alternative Investment Market (AIM) and other similar markets.
With the Government today announcing that only 6% of all estates are to pay IHT this year, they maintain that while 3/4 of IHT claims should remain unaffected by changes, the new measures should raise £2 billion by the final year of the forecast.
If you would like advice or assistance on any of the new changes, Leathes Prior are here to help.