CGT & IHT in the firing line
The two big issues that got people talking in the latest Budget are Capital Gains Tax and Inheritance Tax. Not least because the increase in CGT kicks in right away.
Both lower and higher rates of Capital Gains Tax rise from 10% to 18% and 20% to 24% – which is significant.
This will impact on shares, crypto, and anything you sell for more than what you bought it for.
There are some variables.
Business asset disposal relief (BADR) will increase eventually to the same lower rate (18%), but in stages, rising to 14% next April and to 18% the following April (2026).
They haven’t increased rates on residential property, so the current rates of 18% and 24% will remain the same. This means that existing landlords, who are already struggling, haven’t been hit. But new landlords will pay additional 2% stamp duty, as that increased from 3% to 5% overnight.
As the property investment industry suspected that rises were in store, the rush to complete purchases prior to Budget Day kept plenty of conveyancing solicitors burning the oil late into the night to ensure they completed ahead of the changes.
Inheritance Tax changes
There were three big IHT announcements
1: Pensions will now be brought into the estate for tax purposes, as of April 2027. This means that, if you die with a substantial pension pot, your heirs will pay inheritance tax on it. If you’ve accumulated a substantial pension pot, they could be hit by a 40% tax bill.
However, the government haven’t introduced a lifetime cap, which some people thought may be the case. The existing changes will give IFAs plenty of work to do to ensure their clients savings remain tax efficient.
2: Business property relief will change as of 6th April 2026. So, if you want to pass the shares in your company to your next of kin, now only the first £1 million is exempt, the rest is subject to 20% IHT.
For instance, if you own £5 million worth of shares in your company and leave it to your children, they’ll potentially need to find £800,000 in tax. The challenge for any company is that, while the value of the company may be high, most of its value is not in the bank, but in assets and goodwill. This kind of tax bill can be crippling for cash flow.
IHT in relation to businesses is now more complex, so speak to your accountant.
3: Agricultural property relief; this is the same principal as Business property relief, but for farms. Needless to say, the NFU is taking legal action to change this situation.
Currently it is due to take effect on 6th April 2026. There are circumstances where the Inheritance Tax can be paid over 10 years – but, it was recently pointed out, if only 20% of a farmers income is actual profit and the land value may run into millions, where will the money come from to pay the tax bill, even over 10 years, without putting the farm into an impossible financial situation?
Finally
The Budget may have created some unwelcome news for you, but overall it wasn’t as dire as many people expected. It’s rare (almost unheard of) for a Budget to get rave reviews, so this is a reasonably positive outcome overall.
