Smarter Tax Planning After the Budget

The latest UK budget introduces significant shifts for employers, taxpayers, and investors, with changes in National Insurance, inheritance tax reliefs, and new taxes for non-domiciled residents – tax planning following this budget is essential.

These adjustments, set to start from April 2025, will affect both small businesses and individual taxpayers, presenting new financial planning challenges and opportunities.

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(Read Time: Approx. 4 minutes)

Topics Discussed:

• Effective tax planning following the budget to mitigate the impact of recent CGT, IHT, and SDLT changes.
• Practical advice on investment choices and wealth transfer to reduce tax liabilities.

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Preparing for Higher Capital Gains Tax Rates

Capital Gains Tax applies to the profit made from selling assets like property or shares that have appreciated in value.

Following the Budget, CGT rates on most assets now sit at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, marking a significant rise from the previous 10% and 20% rates.

Property-specific CGT remains at 18% and 28%, depending on your other income, but additional changes affect business owners too.

The rate under Business Asset Disposal Relief (BADR) has increased to 14%, up from 10%, altering tax liabilities for individuals selling qualifying business assets.

To mitigate these effects:

• Sell Loss-Making Assets Before April 2025: By realising losses before the end of the tax year, you can offset gains that would otherwise be subject to higher rates. This timing can help balance your overall CGT liability.

• Consider High-Risk Investments with Tax Benefits: Investments in the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) offer substantial CGT relief. EIS investments allow you to defer gains, while SEIS offers up to 50% exemption on investment amounts. However, these schemes are high-risk, and professional guidance is essential.

• Transfer Assets Between Spouses or Civil Partners: This approach lets you utilise each partner’s lower tax band or exemption, reducing the total CGT burden. Transfers between partners are exempt from CGT, making it a cost-effective strategy for future asset sales.

• Maximise ISA and Pension Allowances: Assets held in ISAs and pensions remain CGT-free, and any growth within these wrappers avoids the tax entirely. Given the annual CGT allowance reduction to £3,000, leveraging tax-efficient accounts like ISAs and pensions is increasingly beneficial.

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Changes to Inheritance Tax

Changes to Inheritance Tax rules include integrating unused pension funds into a decedent’s estate from April 2027, which could increase the IHT burden on beneficiaries.

In addition, from April 2026, Labour plans to adjust Agricultural Property Relief (APR) and Business Property Relief (BPR).

Currently, these allow for up to 100% relief on agricultural or business assets, but the new rules cap relief to £1 million per asset class, with assets over £1 million subject to a effective 20% tax rate.

We covered Agricultural Property Relief in a video which you can find here.

To prepare for these IHT adjustments:

• Consider Increased Pension Withdrawals: With the pending inclusion of pensions in IHT calculations, withdrawing funds during your lifetime may reduce the taxable estate you leave behind. For those able to remain within the basic income tax bracket, pension withdrawals may be taxed at just 20%.

• Gift Funds from Pensions During Retirement: Lump-sum gifts made directly to beneficiaries can reduce the IHT load if the donor survives for seven years post-gift. Given the potential 40% IHT rate on unused pensions, early gifting is a viable approach to preserving wealth.

• Transfer Ownership of Business Assets Early: If you own substantial business or agricultural assets, passing ownership to the next generation during your lifetime can avoid future IHT increases. Doing so gradually allows wealth transfer without the severe tax hit that may arise if assets are retained until death.

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Mitigating Higher Stamp Duty Land Tax Costs

The Budget raised SDLT on second homes and buy-to-let properties by 2%, bringing the surcharge to 5% as of 31 October.

This increase is immediate and leaves few options for mitigation, yet a few strategies can help.

• Re-evaluate Property Investments: With the increased upfront cost of additional properties, alternative real estate investments, like Real Estate Investment Trusts (REITs), may offer exposure to the property market without direct SDLT liabilities.

• Review Timing for Main Residence Sales: If you’re buying a second home before selling your primary residence, you can apply for a stamp duty refund by selling your original residence within three years. This tactic can reduce SDLT costs if your second home is intended to become your new primary residence.

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Summary

The recent tax changes may seem overwhelming, but there are concrete steps you can take to shield your wealth from the full brunt of CGT, IHT, and SDLT increases.

Strategic asset allocation, well-timed transactions, and careful consideration of tax-efficient investments like ISAs and pensions can help preserve your financial standing.

For personalised tax planning after the budget tailored to your unique circumstances, reach out to Ilyas Patel Accountants.

Fill out our form here for any questions, give us a call at 01772 920579, or message us on our WhatsApp for out of office hours.

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Kind regards,

Ilyas Patel