Tax Q&A

Our tax experts answer key questions from the Autumn Budget

The capital gains tax rates have changed how might this affect me?

Pre-budget there was concern the capital gains tax rates would be increased to align with income tax rates. In the event this did not happen, instead the Chancellor increased the capital gains tax rates from 10% to 18% if the gain falls into the basic rate tax band and from 20% to 24% if it falls into the higher rate or additional rate tax band.

This means any capital gains tax assets, including investments in a General Investment Account sold on or after 30 October 2024 at a gain will suffer tax at these increased rates.

There is a capital gains annual exempt amount, which is set at £3,000 until 2028. It is expected that it will be possible to choose how this exemption is used. So, if you have taxable gains both before and after 30 October then the annual exemption could be set against the gains after 30 October as these will suffer capital gains tax at the higher rates.  

What can I do to manage my gains?

One thing to check is if you have any unclaimed capital losses, which could help to reduce taxable gains. There is a time limit for claiming capital losses. Unclaimed capital losses from 2020/21 will need to be claimed by 5 April 2025. The rules around capital loss claims and use can be complicated so taking advice is recommended, Ascot Lloyd have a paid for tax service that can provide assistance.

There are also investments that can help to reduce your capital gains tax exposure, so please contact your financial adviser for a discussion.  

Were there any changes to income tax I need to consider?

The income tax rates and bands have remained frozen and will remain so until 2028. This means if income increases, such as the state pension increase, as the point at which you would start to pay income tax is not rising, this will push more people into paying tax or higher taxes.

With a personal allowance of £12,570 those receiving the flat rate pension will only have about £600 of personal allowance left before their other income becomes taxable. HMRC expect individuals to let them know if they are in receipt of untaxed income such as investment income on which tax is due. So, taking a look at your overall income tax position will help you to decide if you need to let HMRC know about your tax position.

Has anything changed on ISAs?

The proposed new British ISA which the previous Government planned to introduce has been dropped, so the potential to add an additional £5,000 to a tax-free investment environment has been removed. For another year the ISA allowance has remained at £20,000 and will remain frozen at this level until 2030, along with all ISA allowances.

What changes have been made to inheritance tax?

One thing that has not changed is the inheritance tax nil rate bands will remain at their current levels of £325,000 for the nil rate band and £175,000 for the residence nil rate band, until 5 April 2030.

But there have been some significant changes to inheritance tax. One that will impact many individuals is the bringing of pensions into the inheritance tax net on the death of the pension member from 6 April 2027. The value of unused pension pots and death benefit amounts will be added to the assets owned personally. This will mean many more people will be paying inheritance tax.

The other change is to inheritance tax exemptions know as business property relief and agricultural property relief. The reliefs which used to provide 100% exemption from inheritance tax will be restricted from 6 April 2026.

How will the pension inheritance tax changes affect me?  

From 6 April 2027, pensions will no longer be protected from inheritance tax. The change has come about as the Government perceives pensions saving have been used to shelter wealth from inheritance tax rather than being used for their intended purpose, to fund retirement. 

After this date, unused pension pots and death benefits will form part of the estate for inheritance tax purposes on death.

What other tax impacts are there from this change?

If you pass away after age 75, your pension will also be subject to income tax when inherited.

The other tax impact will be the availability of the residence nil rate band. An inheritance tax allowance introduced to help pass on family homes free of inheritance tax.  One of the conditions to qualify for full residence nil rate band is that the net estate must not exceed £2 million. With pension pots now included in estates, fewer individuals may qualify for this relief.

What should I do between now and the date when the new rules start?

It would be a good time to check the value of your assets and your pension and consider if you need to undertake some inheritance tax planning ahead of the rule change in 2027 to protect your wealth from inheritance tax and the options available. Your financial adviser can guide you through the options and help you to decide the best route for you and your family.

Were there any other changes to Inheritance Tax?

The inheritance tax relief on Alternative Investment Market, AIM, shares and unquoted trading company holdings will change from 6 April 2026. Holders of AIM shares from 6 April 2026 will only receive 50% relief rather than the current 100% relief, so the shares will become subject to inheritance tax at a rate of 20%. This will mean for someone with an AIM portfolio of £100,000 that was previously inheritance tax exempt, inheritance tax of £20,000 will be payable if the individual passes after 5 April 2026.

For those with farms, own businesses or holding shares in unquoted trading companies via inheritance tax schemes or the Enterprise Investment Scheme they will see the current 100% relief available without limit, being limited to an allowance to cover all holdings of £1,000,000 qualifying for the 100% relief. Over the allowance only 50% relief will apply, meaning the holdings above the allowance will be subject to inheritance tax at 20%.

If you hold AIM shares or have over £1,000,000 invested in unquoted businesses, it is time to have an inheritance tax review with your financial adviser. There may be steps that can be taken to manage your inheritance tax exposure.

What do all the changes mean for business owners?

In addition to the restriction on business property relief the Chancellor announced increases to the rates of tax that will be paid by business owners when they sell their businesses.

If conditions are met business owners can benefit from Business Asset Disposal Relief. They would mean the first £1 million of gain is taxed at 10%, with the current higher rate of 20% on the balance of the gain. Going forward, from April 2025, the £1 million relief is retained, but the tax rate will increase to 14%. Then, in 2026, it rises to 18%, with gains over £1 million taxed at the new rate of 24%. This will significantly increase a business owners capital gains tax costs on disposing of their business.

With the restriction on business property relief from 6 April 2026 business owners will find that if business assets are held to death more tax will be paid, and if business assets are sold in lifetime more tax will be paid in the future.

If you have any concerns or questions about tax planning, get in touch with your adviser or request a call back.