What’s Changed: CGT & IHT Updates
The UK Autumn Budget introduced several important reforms:
- Capital Gains Tax (CGT) rates have been increased: 10% → 18% for lower-rate taxpayers, and 20% → 24% for higher-rates, aligning CGT on gains for business disposals with residential property rates. (gov.uk)
- Business Asset Disposal Relief (BADR) is being phased up: 10% in current year, rising to 14% from 6 April 2025, then 18% from April 2026-27. (gov.uk)
- Inheritance Tax (IHT) thresholds are being frozen until April 2030, and reliefs like Agricultural Property Relief & Business Property Relief are being reformed: full relief for assets within the first £1 million, then tapering to 50% on value above that for larger estates. (gov.uk)
Implications for Entity Structuring Decisions
For SMEs and Start-ups
- A business owner planning to sell shares should reconsider timing: selling before the BADR rate increases may save substantial tax.
- Use of holding companies may offer options to distribute gains among family stakeholders staying within relief limits.
- Investing via shareholdings or equity instruments can preserve relief eligibility.
For Estates & Succession Planning
- For someone passing high-value farms or businesses, aligning asset values close to the £1 million threshold is crucial.
- Gifting during life may help reduce taxable estates over threshold, but watch the timing with frozen thresholds.
- Incorporating assets into trusts will be affected: the removal of domicile-based distinctions means estate plans must be reviewed.
Examples with Scenarios
| Scenario | Before Reform Strategy | After Reform Considerations |
|---|---|---|
| Selling family business shares | Use BADR at 10% for lifetime gains, plan sale accordingly. | If sale occurs after 6 April 2025, expect 14–18% rate; split sale or defer if possible. |
| Inheritance of combined business & agricultural property valuing £2 million | Previously possibly full relief under BPR/APR. | Only first £1 million gets full relief; remaining £1 million taxed at 50% relief level. |
| Property portfolio held by private company | Use of company structure + BADR for individuals. | CGT alignment with residential property may reduce arbitrage. |
Actionable Structuring Tips
- Review BADR eligibility annually; small shareholdings and business operations matter.
- Align valuations using latest appraisals to get relief under relief ceilings.
- Consider phased disposals and possibly family transfers ahead of rate rises or frozen thresholds.
- Use trusts and lifetime gift allowances but reassess in light of domicile regime change.
- Seek professional advice particularly when disposing of high-value assets or transferring wealth.
Compliance Essentials
- Keep detailed records of asset cost bases, special relief claims, and valuations.
- File necessary CGT and IHT documents promptly after transactions.
- Ensure inheritance tax forms and trusts are up-to-date given the removal of non-UK domicile privileges.
Bottom Line
Structuring entities and estate plans in the UK now demands more forward-looking strategy. With higher CGT rates, frozen inheritance thresholds, and residence-based taxation, businesses and individuals need to adapt. Practical actions earlier rather than later on sales, gifting, or succession could lead to major tax savings.