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Capital gains tax
Perhaps we breathed a sigh of relief that the increase in Capital Gains Tax (CGT) was not as bad as the predictions led us to believe. The predicted rise to the tax rate on the sale of residential property has not occurred with rates remaining at 18% and 28%. Capital gains on other assets (shares for example) will hit the lower rate tax payers most with an increase of 8% (10% – 18%). Higher rate tax payers face an increase of 4% (20% – 24%).
The greater impact is on entrepreneurs. Whilst the chancellor indicated support for entrepreneurs by maintaining the business asset disposal relief, the lifetime limit was frozen at £1m and the taxation rate increased from 10% to 14% from April 2025 to 18% from April 2026.
Inheritance Tax: pensions, farms and businesses
The good news is that the residence nil rate band and capital gains free uplift remain untouched, but overall the budget was bad news for inheritance tax and especially for the farming industry, family businesses and pension funds.
The nil rate band, already frozen since April 2009 remains frozen until April 2030. Overall, the nil rate band will now remain fixed at £325,000 for a period of 21 years. The effect of this freeze is to drag far more estates into the inheritance tax regime than ever before. Long gone are the days when inheritance tax was a tax of the wealthy (the average value of a 3 bed semi-detached house in London now hovers at around £1m and around £400,000 in Cornwall).
Inherited pensions are now brought into the taxable estate. Whilst not unexpected, this is likely to have a significant impact on those who had planned for the future security of their loved ones with a comfortable pension fund.
The change which may have the most significant impact is the new limit on Agricultural Property Relief (APR) and Business Property Relief (BPR) from April 2026. Previously available at 100% without limit, APR at 100% is now available only up to the first £1m of agricultural property and assets. After this, the relief will drop to 50% (giving an effective tax rate of 20%). One may predict a very significant impact on the farming community where the commercial value of land has risen so much in recent years. Business property relief on transfer of business assets previously available at 100% (which excludes business property already limited to 50% relief) is likewise now limited to the first £1m with a 50% relief thereafter.
There could be a very serious impact on the farming industry. Where farmland is currently held in trust, consideration should be given to appointing the land out of trust well before April 2026. Lifetime transfers of land will not now avoid tax where that transfer is of land exceeding a value of £1m, with the new regime applying on lifetime transfers immediately. The strategy for farming families will be early and careful planning.
Trusts
Finally, it seems that the tax regimes as they apply to trusts including the relevant property regime remains unaffected other than the higher CGT rates that will apply upon the disposal of relevant property trust assets. This comes as some relief. As above where trusts hold agricultural or business assets, consideration may be given to appointing these assets out before the new tax rates applies.
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