As the Autumn budget approaches (30 October 2024), there are many potential changes that could significantly affect taxes and estate planning strategies.
Anticipated tax changes
Chancellor, Rachel Reeves, has uncovered a £22bn deficit in public finances, leading to speculation about inevitable tax hikes. Although income tax and VAT increases have been ruled out, Capital Gains Tax (CGT) and Inheritance Tax (IHT) are possibly under review.
Capital Gains Tax (CGT)
- Currently the rate for shares: 20% (excluding reliefs)
- Potential for rate to rise, possibly aligning with income tax rates
- Business Asset Disposal Relief (BADR) may be open to changes or abolition
It is advisable to always take professional advice from an accountant concerning Capital Gains Tax. Once an accountant has confirmed the Capital Gains Tax position, our team can assist with the legal drafting of documentation.
Inheritance Tax (IHT)
While detailed amendments to IHT have not been mentioned, it’s an area that could possibly be targeted for reform.
Implications for estate planning
1. Urgency in action: Any alterations announced could be introduced immediately on 30 October 2024. If you are considering significant asset transfers or sales, then you should act quickly.
2. Review of existing Wills: It’s important to review your Wills to ensure they remain tax-efficient under potential new laws.
3. Lifetime gifting strategies: Think about accelerating planned lifetime gifts to take advantage of current tax rates and reliefs.
4. Business asset review: For those with business assets, we advise you to speak to your accountant about reviewing the potential impact on Business property Relief (BPR) and consider restructuring if necessary.
5. Trust arrangements: Weigh up the advantages of setting up or adjusting trust arrangements, particularly Discretionary Trusts, which may offer tax benefits.
Key considerations
Discretionary Trusts
A Discretionary Trust (DT) can be a useful tool for tax and succession planning when transferring shares. In a DT, trustees selected by the trustor manage the trust’s assets and determine distributions to beneficiaries named in the trust deed.
Transferring shares that qualify for business relief (BR) from Inheritance Tax (IHT) to a DT, if completed correctly, avoids incurring an IHT charge. While Capital Gains Tax (CGT) may apply, it can be deferred through holdover relief. If CGT rates increase, transferors might opt to pay CGT at current rates on selected or all gifted shares.
Business Asset Disposal Relief (BADR)
- Under law currently, it decreases the CGT rate to 10% on eligible disposals
- Restricted to £1 million lifetime allowance
- May be abolished or more restricted, making immediate action beneficial for some individuals
Business Property Relief (BPR)
- Currently, it offers up to 100% exemption from Inheritance Tax (IHT) for eligible business assets.
- Monitor for possible amendments in qualification criteria
Action points
1. Urgent estate reviews: Carry out a comprehensive estate review.
2. Asset valuation: Carry out up-to-date valuations of significant assets, particularly business interests.
3. Succession planning: For business owners, review and potentially speed up succession plans.
4. Trust creation or modification: Consider setting up new trusts or modifying existing ones to optimise tax efficiency.
5. Will updates: Have your Will reviewed and updated to ensure you reflect the latest tax landscape.
Comment
If you have significant estates or business interests, we advise you to seek guidance on these potential changes so you can ensure you still benefit from the changes and mitigate tax exposure. We advise you to speak with an accountant about Capital Gains Tax, Business Asset Disposal Relief, and Business Property Relief if you need general advice.
How can we help?
Amanda Voakes is a Partner in our expert Wills and Probate team, advising on Inheritance Tax planning, Wills, administration of estates, grants of Probate, grants of Letters of Administration, Powers of Attorney, administration of affairs, and residential care fee planning/protection of assets.
Amanda is an accredited member of The Association of Lifetime Lawyers (formerly known as Solicitors for the Elderly or SFE) which is a membership body for legal professionals. Members of the group are the most qualified lawyers in the country when it comes to supporting older people and those in vulnerable circumstances who may need extra help and support. Lifetime Lawyers receive expert training and best practice guidance to offer the very best advice.
If you require any legal advice on the above subjects, please contact Amanda or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online enquiry form.
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This article is for information only and does not constitute legal/financial advice. Please contact us for advice tailored to your specific position. Some of the content presented on our website has been generated with the assistance of Artificial Intelligence (AI). We ensure that all AI-generated content meets our high standards for accuracy and relevance.
