For those of us working in Tax, the start of Autumn not only reminds us that the year is passing by but also that another Budget is looming. The Autumn Budget is due on 27 October this year.
As we know there were no changes to Inheritance Tax (IHT), or Capital Gains Tax (CGT) announced in the last Budget, in March but this may have simply been a stay of execution. Certainly, some farmers have taken the opportunity to pass on property to the next generation while the existing favourable tax regime for capital taxes still exists.
An increase in CGT rates has been anticipated for some time now and it does just seem a matter of when. The existing rates of 10% and 20% for assets other than residential property are historically low rates. Even the residential property rates of 18% and 28% compare favourably with current income tax rates of up to 45%. It would be no surprise to see the rates more closely aligned with income tax rates.
Of course, many farmers can potentially benefit from Business Asset Disposal Relief formerly called (Entrepreneurs Relief) enabling them to pay CGT at a rate of 10% on qualifying disposals. Apart from the name change, the relief has also seen some restrictions, not least the reduction in the lifetime allowance of qualifying gains from £10 million to £1 million for disposals from 11 March 2020.
We already know that the CGT annual exemption is frozen at its current rate of £12,300 up to and including the 2025/26 tax year. Similarly, the IHT nil rate band is frozen at £325,000 and the Residence Nil Rate Band at £175,000 for the same period. The big question with IHT is whether the Chancellor really is prepared for a major shake-up of the tax which some would say is long overdue. Of course, freezing the nil rate band with rising asset values will bring many more estates within IHT without any further action. Agricultural Property Relief (APR) and Business Property
Relief (BPR) are hugely important IHT reliefs for farming families and we cannot rule out some changes.
The current, some might say generous, capital taxes regime with the availability of APR and BPR for IHT, combined with CGT reliefs including holdover relief for gifts of business and agricultural property isn’t going to get any better. Of course, it is precisely this favourable tax landscape which in many respects has encouraged families to put off their succession planning. However, time may finally be running out if you have a clear succession path and want to ensure that your family is not disadvantaged by anything that the Chancellor may have in store.
Our Budget update will be available on our website soon after the announcements are made. If you have any queries, please speak to your usual Dodd & Co contact.
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