Ilyas Patel Accountants in Preston
With the UK government facing a significant shortfall in public finances, the upcoming budget is expected to close certain tax loopholes rather than increase major tax rates.
Rachel Reeves, the Chancellor, is likely to focus on curbing tax advantages that benefit wealthier individuals, raising billions to address the fiscal gap.
Below, we explore five potential tax reliefs that could be on the chopping block, with combined savings of £11.6 billion annually.
(Read Time: Approx. 4 minutes)
Capital Gains Tax (CGT) is a levy on the profit from selling an asset, such as property, shares, or a business.
Basic-rate taxpayers pay 10%, while higher and additional-rate taxpayers pay 20%—with higher rates on property sales.
However, when assets are inherited, the CGT uplift rule currently resets the asset’s value to its market value at the time of the owner’s death.
This means that heirs only pay CGT on the value gained since they inherited the asset, not on any gains accrued during the original owner’s lifetime.
If this rule is abolished, heirs could face significant tax bills.
For example, a child inheriting a property worth £500,000 that was originally purchased for £100,000 would currently only pay CGT on gains after inheritance.
If the rule changes, they would pay CGT on the full £500,000 gain, potentially increasing their tax bill by hundreds of thousands of pounds.
Experts suggest this change could bring in £1.6 billion annually for the government.
Inheritance Tax (IHT) is typically charged at 40% on estates above £325,000 (or £500,000 if passing a main home to a direct descendant).
However, pensions have been excluded from IHT since 2015, making them a highly tax-efficient way of passing on wealth.
Reeves may target this exemption, which the Institute for Fiscal Studies (IFS) estimates could raise £2 billion a year.
Removing the IHT exemption on pensions would likely prompt many to withdraw their pension funds earlier or avoid pension contributions altogether.
While this could increase tax revenue, it might also create financial risks for retirees who could end up depleting their savings too early.
Investing in AIM-listed companies can offer significant tax advantages, including exemption from IHT if the shares are held for at least two years.
Critics argue that this loophole favours wealthier investors and distorts the market.
By closing this exemption, the government could raise between £1 billion and £1.5 billion annually.
However, there are concerns that removing this relief could lead to a sell-off in AIM shares, potentially destabilising the market.
Investors holding AIM shares as part of tax-planning strategies may need to reassess their portfolios in anticipation of this potential change.
ISAs (Individual Savings Accounts) allow individuals to save up to £20,000 per year, with gains and interest earned remaining tax-free.
However, the tax exemption on ISAs costs the government nearly £7 billion annually.
Introducing a cap on the amount that can be held in ISAs tax-free—say £100,000—could generate around £5 billion in revenue.
If this change occurs, those with larger ISA balances could face taxes on income and capital gains above the capped amount.
While it is unlikely that the government will backdate such changes, high-net-worth individuals may soon see limits on the tax-free growth of their savings.
Formerly known as Entrepreneurs’ Relief, this tax break allows business owners to pay a reduced CGT rate of 10% on lifetime gains up to £1 million when selling their businesses.
Critics argue that this relief disproportionately benefits wealthier individuals and has limited economic impact, as it mainly aids those already well off.
The IFS has called for its abolition, estimating it could save the Treasury £1.5 billion annually.
This change could significantly affect business owners planning to sell in the near future.
Without this relief, higher-rate taxpayers would see their CGT rate rise to 20%, effectively doubling their tax bill on the sale of a business.
Rachel Reeves’ upcoming budget is set to close several key tax loopholes, raising billions in much-needed revenue.
Wealthy individuals benefitting from CGT reliefs, tax-free ISAs, and inheritance-friendly pensions could be hardest hit.
To prepare for these potential changes, now is the time to review your tax strategy.
Whether you are selling a business, inheriting property, or holding substantial ISA balances, it’s crucial to act before these loopholes are closed.
With the budget fast approaching, now is the time to seek expert advice.
Contact us at Tax Expert for a consultation to ensure your financial affairs are structured to minimise tax liabilities.
Fill out our form here for any questions, give us a call at 01772 788200, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel