Budget 2024 … 30 October is fast approaching
There are now so many rumours circulating in relation to this month’s Autumn 2024 Budget announcements that it’s difficult to predict what might actually happen. We are sure more will also hit the headlines before 30 October. However, we’ve outlined below a few key topics you may be interested in considering. Please don’t hesitate to contact us if you need any further information, and look out for our Budget analysis after 30 October.
Possible Capital Gains Tax changes in the October Budget
Press and commentators are continuing to suggest that the rate of Capital Gains Tax might be aligned with the rates of Income Tax, which could see a return to rules from many years ago in relation to Indexation Allowance and Taper Relief.
It is hoped that Business Asset Disposal Relief (BADR), or something similar will be kept, in order to try and help encourage entrepreneurship and business growth, though the qualifying conditions could be tightened or take longer to achieve.
Other possible changes to CGT might relate to further restrictions on private residence relief and changes to hold over relief for certain gifts or assets. A controversial change would be the removal of CGT free uplift on death, which might see beneficiaries of an estate inheriting the deceased’s assets at their historic CGT base cost rather than current market value (probate value).
CGT changes normally take effect from 6 April, but there have been mid-year changes in the past. This possibility has resulted in some people trying to bring forward possible disposals to try and take advantage of the current CGT rules/rates. The disposal date for CGT is the date of unconditional exchange of contracts, but if the Budget does make changes, it is likely to include anti-forestalling rules to counter attempts to artificially bring forward the disposal date. If there is still time to sell assets before 30 October, it could be worth considering – shareholdings within investment portfolios might be the obvious choice but financial advice would be required before doing that.
Rumours of pension changes
Changes to tax relief for pensions continues to be at the top of the list of possible changes in the Budget. Some of the possible changes to look out for could be:
– reducing pension tax relief for individuals to the basic rate or possibly a flat rate of 30%;
– reductions to the 25% tax free lump sum;
– making pension funds potentially be liable to Inheritance Tax; and
– reducing tax relief for employer pension contributions or possible NIC charges on such amounts.
We would hope that pension changes would normally take effect from the start of the tax year (6 April), but a mid-year change could be possible. It may therefore be worth a final discussion with your financial adviser before the Budget, to consider whether to make any additional contributions, or for those who can access their pension, whether to withdraw something now.
Should you pass on wealth now to avoid Inheritance Tax?
Commentary suggests that wealthy individuals have been passing on substantial amounts of cash/assets in advance of the Budget.
If that is something you have been considering, you perhaps first need to check what the value of your estate and potential exposure to IHT may be under the current rules. At present individuals are usually entitled to a Nil Rate Band (IHT Threshold) of £325,000, and potentially up to a further £175,000 in relation to the value of the family home, provided certain conditions are met. This additional threshold is known as the Residence Nil Rate band. Assets given away within seven years of death will usually be counted back into the value of the estate.
Gifts between spouses are usually exempt from IHT but others could result in an IHT liability on death if the threshold is exceeded – the rate of IHT on death being 40%. In addition to the threshold, certain business or agricultural assets may be entitled to some relief, which needs to be reviewed on a case-by-case basis (and watch out in case changes are made to those rules or IHT generally in the Budget).
Under the current rules there is no IHT payable where the donor survives for at least seven years from the date of the gift, though care is required if the donor continues to have use or benefit from the asset given away, as it may then still be treated as part of their estate.
When making a gift for IHT purposes it is necessary to also consider what Capital Gains might be triggered because that could otherwise result in an unexpected CGT liability.
If you have been considering whether to make any gifts, please do get in touch with a member of our Tax Team if you would like to discuss the rules or your thoughts on what do do.
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