As expected, changes to personal taxation announced at the 2024 Autumn Budget were largely focussed on the wealthy, with even a hike in air passenger duty for those travelling by private jet.
Aside from the ‘non-dom’ changes, which we cover in a separate briefing, the most significant announcements for private clients were inheritance tax restrictions on agricultural and business property relief; an unexpected rise in stamp duty land tax on second homes and some immediate CGT increases, though not to income tax levels. Otherwise, the changes were not as extensive as they could have been, and many changes will not take effect until 2026 or 2027, leaving time for adjustment and planning.
In this briefing we outline the main changes to personal taxation for UK private clients. Please also see our separate briefings on corporate and property tax measures and non-dom reforms.
Rachel Reeves made fewer changes to the inheritance tax regime than had perhaps been anticipated. The headline tax rates have not changed and the 7-year survival period for tax-free lifetime gifts was not extended, but there are significant changes to APR and BPR.
Agricultural and business property relief cap
From 6 April 2026, 100% relief is to be restricted to the first £1m of agricultural and business property combined. Only 50% relief will be available on the excess. Putting a cap on the relief increases the effective rate of IHT for larger estates with this type of property, closing a perceived ‘loophole’, although these reliefs are not loopholes per se!
The allowance will be available per individual on IHT charged on death and lifetime gifts. Any unused allowance will not be transferable to a spouse or civil partner, but together they will have £2m. There is an element of immediate effect as lifetime gifts made now will be subject to the cap if the donor fails to survive for seven years and dies on/after 6 April 2026. No relief is needed for outright gifts made more than 7 years before death and so passing on farms and businesses early, or via a spouse, will be key to IHT planning in future.
The allowance is also available to trusts holding agricultural and business property – and on each trust made by the same settlor before budget day, but shared between multiple trusts made on/after the Budget. There will be a consultation in early 2025 on the precise application to trusts, but these are still likely to be attractive: with hold over relief from CGT now at 24% (being significant on assets with low base costs); IHT entry charges at 10% (or nil, before April 2026) and only 3% every ten years on the excess value over £1m.
AIM investments will continue to attract BPR but at the reduced rate of 50% relief in all cases. Although these will not benefit from the new allowance, they won’t use up any of the allowance either.
IHT payable on business and agricultural property will continue to benefit from the instalment option, to spread payments over 10 years – and instalments on agricultural property and some BPR assets are generally interest-free. (Note that interest on unpaid tax will increase from 2025 to 4% above base rate, so claiming the instalment option on other property will be an expensive way to fund IHT).
It was also confirmed that APR will be extended to land managed under approved environmental schemes with effect from 6 April 2025, as previously announced, though this will be little consolation to the farming community.
Nil rate band freeze
Current IHT ‘thresholds’ will remain frozen until 6 April 2030 – a further two years than previously proposed. The standard nil rate band will therefore remain at £325,000: the level first introduced in 2009. And the additional residence nil rate band, introduced in 2017 for deceased estates below £2m passing residential property to lineal descendants, will have been frozen at £175,000 for 10 years.
Pensions
From 6 April 2027, unspent pension funds and death benefits will be subject to IHT payable directly by scheme administrators. This is another significant change as death benefits in discretionary schemes have always been protected from IHT. Prompt liaison between PRs and administrators will be necessary to pay IHT within 6 months of death. There will be calculators to apportion the nil rate band between the deceased’s estate and multiple pension schemes.
There are indications that withdrawals by family members of remaining funds will be subject to income tax, giving an element of double taxation. This change will end the practice of keeping undrawn pension funds intact as an IHT shelter.
The government also plans to digitalise the IHT system from 2027-28.
Again, there were no real structural changes to CGT and so aspects such as the tax-free uplift on death remain, for example.
Rates
These have increased with immediate effect, though not across the board and not as high as some people expected.
For disposals made on or after budget day, CGT will increase from 10% to 18% for individuals paying the lower rate, and from 20% to 24% for all gains realised by executors and trustees and for higher and additional rate taxpayers. This will bring the headline CGT rates for all assets into line with residential property rates, which are unchanged. It causes a split tax-year for 2024-25 for the purpose of allocating losses and allowances, as last seen in 2010-11.
The new rates will not apply to gains arising on unconditional contracts made before 30 October that have not yet completed; but there are anti-forestalling rules for gains exceeding £100,000: the parties must confirm there was no tax advantage purpose by reference to the time of disposal and, if they are connected parties, the contract was made for wholly commercial reasons.
A 10% rate remains for the rest of this tax year for both business asset disposal relief (BADR) and investors’ relief, but there will be a phased increase to 14% in 2025-26 and 18% from 6 April 2026. BADR remains restricted to a lifetime limit of £1m of gains and the lifetime limit for investors’ relief is reduced from £10m to £1m from budget day.
As expected, there are to be new rules for carried interest, with a flat rate of 32% CGT taking effect for 2025-26. From April 2026 carried interest will then be taxed within the income regime and subject to class 4 NICs, subject to certain adjustments. These reforms are subject to consultation.
Income tax & VAT rates and employee NICs are not changing, in line with Labour’s manifesto commitments. Income tax thresholds will remain frozen until April 2028, and will then be uprated in line with inflation.
Employer NICs are increasing from 13.8% to 15% from 6 April 2025 and, together with a threshold reduction, this is the biggest revenue raising measure to be announced at the Budget.
ISA subscription limits will remain at their current levels until April 2030 and there will be no new British ISA as previously trailed.
As expected, 20% VAT will be levied on private school fees and boarding costs from 1 January 2025, with anti-forestalling measures for pre-payments made between 29 July and 30 October 2024.
This note is intended to provide a first point of reference for current developments in aspects of the law. It should not be relied on as a substitute for professional advice. If advice on a particular circumstance is required please contact your Boodle Hatfield lawyer or one of the lawyers listed as authors.
On 30 October, the Chancellor delivered the Autumn Budget, announcing £40bn of tax rises and an agenda for growth. The first Budget from the new Labour government, and the first ever from a female Chancellor, includes immediate increases in CGT; a significant restriction on inheritance tax relief for business and agricultural property, and further detail on the major reforms to non-domiciled taxation.
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