Fiona Hay MCIArb and Alana Hughes look at the impact of The Autumn Budget for Financial Remedy cases
31st Oct 2024 | News
The rumours swirling around the Rachel Reeves’ autumn 2024 budget were such that one case in which the authors were involved was adjourned on 25th October 2024 after submissions and before judgment so that, if necessary, further tax evidence could be obtained and judgment delivered in the light of new figures. The main concern in that case was that CGT was to be applied to business assets, most of which were to be retained by one party, and that therefore the overall analysis of equality would be affected by an increase in the tax to be levied.
The adjournment proved to be a sensible decision as the chancellor’s axe has indeed fallen largely on businesses.
CGT on Non-Residential Property
Prior to the budget the CGT rates on residential property were 18% at the lower tax threshold and 24% at the higher tax threshold. These rates remain the same.
Prior to the budget the CGT rates on non-residential property were 10% at the lower threshold and 20% at the higher tax threshold. From 30 October 2024 these rates have changed. They are now 18% at the lower threshold and 24% at the higher threshold.
Personal tax rates and thresholds have not changed. If an individual’s income is over £50,270 in the relevant tax year all gain is taxed at the higher rate. If lower than £50,270 some gain is taxed at the higher rate and some at the lower.
Example 1.
An individual sells shares for a gain of £20,000. Their income from other sources is £20,000. The taxable gain is £17,000 (the allowance is £3,000). Overall gain/income is £37,000. This is under the basic rate band of £37,700. CGT would have been £1,700 (10% of £17,000). It is now £3,060 (18% of £17,000).
Example 2
An individual sells shares for a gain of £400,000. Their income from other sources is £60,000. The taxable gain is £397,000. Overall gain/income is over the higher tax threshold. CGT would have been 20% (£79,400). It will now be 24% (£95,280).
In the case referred to above, the impact will be significant.
Inheritance Tax
Pensions
Prior to the budget there was no IHT on inherited pensions. From April 2027 inherited pensions will be subject to IHT.
Farms
Many of us have been involved in farming cases in which the IHT exemption has been critical to the viability of the farm. The present exemption is 100% on qualifying agricultural assets. There are to be changes from April 2026. From that date the first £1m of agricultural property will receive the 100% relief. Any additional value will be taxed at 50% of the current rate (i.e 20%). The government claims that three quarters of estates claiming agricultural property relief are unlikely to be affected by these changes.
Business property
Business property relief has also been affected. In relation to qualifying business assets it was 100%. From April 2026 it will be 100% on the first £1m and 50% on any additional qualifying business assets meaning that tax at 20% will be paid on the balance of the estate. In relation to any shares “not listed” on markets of residential stock exchanges the relief is to be reduced to half of the current rate – all shares will be subject to 20% IHT.
Business Taxes
The raise in NI rates for employers may be less evident on the ES2. However it is likely in the long term to affect many of our cases. The means by which the chancellor hopes to raise £25bn per annum – she has raised the employer NI level from 13.8% to 15% and she reduced the threshold from £9,100 to £5,000. The impact on the small employer may be significant.
