Not that long ago the outgoing Conservative government had been rumoured to be on the verge of abolishing inheritance tax (IHT).
But with Labour’s first budget, that idea now seems a far cry from reality.
Instead, the continued freeze of the nil-rate band (NRB) and changes to pension IHT treatment will pull more families than ever into the IHT net. The NRB, which has been locked at £325,000 since 2009, will remain frozen until 2030, meaning that more estates will become liable for IHT each year. If this threshold had risen with inflation, it would stand at around £503,879, highlighting just how outdated the £325,000 exemption now feels. For many families, this will mean a larger share of wealth lost to tax, making strategic estate planning more critical than ever.
The most significant change is the sharp increase in CGT rates.
For basic-rate taxpayers, CGT has jumped from 10% to 18%, while higher-rate taxpayers now face a 24% rate, up from 20%. These new rates came into effect immediately on 30 October, aligning CGT on most assets with the previous rates applied to residential property gains. Investors who had anticipated the old rates may now find themselves with unexpected tax liabilities if they hadn’t acted quickly, and it’s clear that forward planning has become more essential than ever.
Business Asset Disposal Relief & Investors’ Relief
Further changes affect Business Asset Disposal Relief (BADR) and Investors’ Relief. BADR, which offers a lower CGT rate on qualifying business disposals, will see its rate increase from 10% to 14% for disposals from April 2025 and then to 18% from April 2026. Similarly, the lifetime limit for Investors’ Relief – a valuable tool for those investing in qualifying shares – has been dramatically reduced from £10 million to just £1 million for disposals after budget day. These changes are intended to bolster public finances while retaining some incentives for entrepreneurs, but they will nonetheless come as a blow to business owners and high-net-worth investors who counted on these reliefs for substantial tax savings.
Strategic tax planning
The new CGT rates have prompted many investors and business owners to rethink their financial strategies. For those now facing higher rates, timing is key to managing their tax exposure effectively. With the AEA now significantly lower, one approach is to stagger disposals over multiple tax years to maximise the use of this limited allowance. By applying the AEA to gains taxed at higher rates, individuals can reduce their overall liability – a method that has become even more crucial under the new, higher rates.
Capital losses are another tool in the tax planning kit that may become invaluable. Losses carried forward from previous years can offset future gains, reducing the taxable amount. Where gains were made both before and after the budget changes took effect, taxpayers have some flexibility in how they allocate their AEA and losses, allowing them to prioritise offsetting gains taxed at higher rates first. This approach can lead to a marked reduction in CGT owed, and with rates now steeper, the difference could be significant.
For those managing investment portfolios, the changes signal a need to reconsider their long-term plans. With higher CGT rates now a reality, some may find it beneficial to hold onto assets for longer, deferring disposals until their tax planning aligns with other financial objectives. For business owners approaching retirement or planning a family succession, this might mean carefully timing the sale of business assets or looking into tax-efficient methods to pass assets to the next generation.
Property investors, take note
While CGT rates on residential property disposals remain unchanged, the increase in CGT on other assets means that tax considerations will likely play a larger role in property portfolio decisions, particularly if selling or restructuring ownership. In a landscape where property gains outside the primary residence are now taxed at much higher rates, strategic management becomes paramount.
Final thoughts
The government’s approach to CGT reflects an intent to have those with greater wealth contribute more to the Treasury, yet it has created an environment where careful tax planning is more important than ever. While these changes present challenges, they also highlight the value of professional guidance. By consulting financial advisers and tax professionals, taxpayers can develop strategies to align with the new rules while minimising unnecessary liabilities.
As tax rules evolve rapidly, being informed and proactive is key to managing personal and business finances effectively. The CGT changes introduced in the Autumn Budget demonstrate the importance of understanding current regulations while anticipating future shifts. Whether you’re an investor, business owner, or property holder, the message is clear: proactive tax planning can make a substantial difference in preserving your wealth. Though the new CGT rules may feel like an obstacle, with a well-crafted strategy, they can be managed in a way that supports your financial interests and keeps you compliant with the latest regulations.
Tax planning is not regulated by the Financial Conduct Authority.