Jacqui Lazare and Tom Chiffers, partners in Clarke Willmott LLP’s private capital team, look at the key highlights from the Autumn Budget and the tax implications for private individuals.
Some commentators had, in the run-up, likened this Budget statement to an election Budget and the levels of uncertainty and market jitters were exacerbated by the fact that it was scheduled for the latest possible date, nearly a month later than usual. Everyone would agree that Rachel Reeves was under a lot of pressure to deliver something that provided reassurance to markets and appeased her backbenchers. So far, so typical.
After all the build-up the actual content has been something of an anti-climax from a private client and broader perspective. After the seismic changes to the inheritance tax regime announced last October, many people will be relieved by that.
Unlike last year, this Budget has been made up mostly of small adjustments across the board and has been broadly well received by the markets – to the extent that its contents were not as bad as some had feared.
There was a particularly favourable reaction to the borrowing forecasts (to which we, currently, compare favourably against the US not to mention the rest of the G7). The pound enjoyed a small bounce against the US dollar on Wednesday afternoon as a result and bond markets were confident.
This means that the stability that everyone was hoping for was delivered. The markets remained stable and that is good for the economy and for everyone.
There are some interesting points to take away from Wednesday’s Budget especially taken together with the ripple effects of the October Budget last year.
As part of our work, we advise clients on their estate planning including through the use of trusts and other structures, and putting in place suitable Wills.
For us, a number of our clients, particularly farmers and landowners, have been particularly motivated to crystallise their estate planning strategies ahead of this new Budget.
Much of this activity was originally prompted by the changes introduced last October but the continuing uncertainty and speculation surrounding this latest statement made people feel that there was a need to take the plunge. For example, in relation to planning around securing Agricultural Property Relief (APR) and Business Property Relief (BPR) or looking to complete on property transactions ahead of concerns around Capital Gains Tax (CGT) and / or Stamp Duty Land Tax (SDLT) changes.
Announcements made yesterday
IHT thresholds
Inheritance Tax (IHT) nil-rate thresholds for both the ordinary nil-rate band (£325,000) have been frozen since 2009. The residence nil-rate band (£175,000), introduced in 2017, has been frozen since 2020. Historically both allowances would increase in line with inflation. It was announced last October that the allowances would be fixed until 2030 but this has been extended by a year, to 2031.
This is expected to increase the number of taxable estates by 10% of by 2029/30 compared to 2021/22, resulting in a projected additional tax revenue of £130m in 2031.
APR and BPR
Last October, it was announced that these (historically) unlimited reliefs against inheritance tax would be restricted from 6 April 2026. From this date, each individual would benefit from an allowance of £1m for assets eligible for APR and/or BPR. Any assets up to that allowance would benefit from the relief at 100% but any assets in excess of that allowance would only benefit from the relief at 50% (creating an effective IHT rate of 20%). Unlike the nil rate band and residence nil rate band, it was announced that any ‘unused’ allowance would not be transferable between spouses.
The announcement last year was met with widespread anger from the agricultural community leading to protests and demonstrations. It also led to many farmers and landowners to revise their succession and tax planning strategies. Many chose to bring forward their succession planning by passing assets onto the next generation.
Despite the pressure over the last 12 months the Government has not rowed back on the key changes announced last year. However, they have made a concession by bringing the new allowance in line with the nil rate band allowance so that any ‘unused’ allowance to be transferred between spouses. This will apply even if the deceased spouse died before 6 April 2026, effectively doubling the allowance for widows and widowers. This change will reduce the projected receipts that were otherwise forecast, by 14% by 2031.
The changes have generated a lot of activity over the past year due to clients wishing to explore and understand their options. This is expected to continue ahead of next year when the changes become effective.
Capital Gains Tax (CGT) – Employee Ownership Trust
Employee Ownership Trusts are aimed to promote employee ownership in businesses. They are being seen more and more and have enjoyed favourable tax treatment on their creation. Business owners can retain up to 49% ownership and the disposal to the EOT has, so far, been CGT (and IHT) free
Yesterday, the Government announced a reduction of this CGT relief from 100% to 50% resulting in a significant saving for the Government.
This removes one of the main tax drivers for selling shares into an EOT but it continues to be a lot more efficient than other sales. This could deter some business owners from pursuing this option and it will remain to be seen what effect this change has.
Mansion Tax
The High Value Council Tax Surcharge (HVCTS) more commonly referred to as the ‘Mansion Tax’ has prompted some interesting discussions.
It will be introduced from April 2028 and be chargeable against residential properties worth over £2 million. It will start at £2,500 per year, increasing to up to £7,500 per year for properties over £5 million.
It will be charged to property owners not occupiers and will be collected by local authorities but paid to central government.
This forms part of the Government’s strategy to tax wealth and address disproportionate taxation of properties across the country. In the Budget document, the Government explains that the typical family home across England currently pays more per year in council tax than a £10m property in Mayfair.
Questions have been raised over how this will work in practice. It has been announced that a ‘targeted valuation exercise’ will be undertaken by the Valuation Office. However, considering the existing difficulties with the Valuation Office and the council tax system in general this may create difficulties. It remains to be seen how issues with multiple ownership or complex ownership structures, such as trusts or limited companies will be addressed. A consultation will begin next year.
Consider the, relatively small receipts and the expense of administering such a scheme, remains to be seen whether the exercise is worthwhile. The Budget tables project it will generate a yield of £435m in 2030/31.
IHT treatment of unused pension funds and death benefits
In October last year it was announced that, from 6 April 2027, unused pension funds would be subject to inheritance tax on the death of the pension holder.
A lot of issues were raised over the implementation of this change. Pension funds do not pass under the terms of an individual’s will but are dealt with by the pension administrator. So, how would the payment of inheritance tax work in practice? Would the tax be paid by the executors or pension administrators?
With this Budget, the Government has provided some clarity around the administration of pension pots following changes announced last year and options that will be available to the PRs of an estate, which should provide some breathing space for PRs during the course of the administration of an estate as follows:
PRs will be able to direct pension scheme administrators to withhold 50% of taxable benefits for up to 15 months and pay IHT due in certain circumstances. PRs will be discharged from a liability for payment of IHT on pensions discovered after they have received clearance from HMRC. This will be legislated for in Finance Bill 2025-26 and take effect from 6 April 2027.
Taxation of income from different assets
Effective from April 2026: Basic rate of income tax on dividends will go up to 10.75%, and the higher rate will be 35.75%. Dividend rates are lower than the “standard” income tax rates, so there’s usually a benefit for a company owner/director in maximising their return through dividends rather than employment income. Those rates are now getting closer to each other, but dividends are lower – and there are also NICs benefits to dividends as compared to other income.
From April 2027: savings income rates are also going up (22%, 42% and 47% for basic, higher, and additional rates respectively).
From April 2027: the rates applying to property income are going up (to 22%, 42% and 47%). Not good news for landlords and could be bad news for tenants also if the cost is passed on by the landlords.
Excluded property trusts
IHT trust charges on excluded property trusts for pre-30 October 2024 will be capped to £5m. This will apply to trust charges from 6 April 2025. More detail is awaited on the implementation and calculation of the cap.
Infected Blood Compensation Scheme
The Budget declared that:
“…payments made under the Infected Blood Compensation Scheme and Infected Blood Interim Compensation Payment Scheme [will be] relieved from inheritance tax in cases where the original infected or affected person eligible for compensation has died before the compensation is paid. First living recipients of compensation payments will also have two years in which to gift some or all of the compensation payment without an inheritance tax charge. This will be legislated for in Finance Bill 2025-26 and will apply to compensation payments made before or after 26 November 2025 and to gifts made on or after 4 December 2025.”
Speak to our team
For more information, or advice on your personal circumstances following the budget, please contact Jacqui Lazare or Tom Chiffers, partners in our Private Capital team.
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