| Date | What’s Due |
| 1 November | Corporation tax payment for the year to 31/1/24 (unless quarterly instalments apply) |
| 19 November | Employer PAYE & NIC deductions, and CIS return and tax, for the month to 5/11/24 (due 22/11 if you pay electronically) |
| 1 December | Corporation tax payment for the year to 29/2/24 (unless quarterly instalments apply) |
| 19 December | Employer PAYE & NIC deductions, and CIS return and tax, for the month to 5/12/24 (due 22/12 if you pay electronically) |
On 30 October 2024, Chancellor Rachel Reeves presented her first budget to parliament. This was a budget intended to restore stability to our economy and to begin a decade of national renewal. Investment will be funded by revised debt rules to facilitate additional borrowing and a hefty £40 billion of tax rises.
Headlines included:
Below, we talk more about the Budget and what it means for you.
Please note that ‘tax years’ run to 5 April each year and that, for example, 2025/26 signifies the year to 5 April 2026.
Your personal allowance
Your tax-free personal allowance will remain at £12,570 in 2025/26. The personal allowance is partially withdrawn if your income is over £100,000 and then fully withdrawn if your income is over £125,140.
Income tax rates and allowances
For 2025/26, income tax rates and thresholds remain frozen at their 2024/25 levels.
After your tax-free ‘personal allowance’ has been deducted, your remaining income will be taxed in bands in 2025/26 as follows:
| 2025/26 | ||||
| ‘Other income’ | Savings income | Dividend income | ||
| Basic rate | £1 – £37,700 | 20% | 20% | 8.75% |
| Higher rate | £37,701 – £125,140 | 40% | 40% | 33.75% |
| Additional rate | Over £125,140 | 45% | 45% | 39.35% |
‘Other income’ means income other than from savings or dividends. This includes salaries, bonuses, profits made by a sole trader or a partner in a business, rental income, pension income and anything else that is not exempt.
Scottish taxpayers
If your main residence is in Scotland or you are otherwise classed as a ‘Scottish taxpayer’, the application of income tax rates and bands applies differently where ‘other income’ is concerned. After the ‘personal allowance’ has been deducted, your ‘other income’ is taxed in bands as follows:
| 2024/25 | ||
| Starter rate | £1 – £2,306 | 19% |
| Basic rate | £2,307 – £13,991 | 20% |
| Intermediate rate | £13,992 – £31,092 | 21% |
| Higher rate | £31,093 – £62,430 | 42% |
| Advanced rate | £62,431 – £125,140 | 45% |
| Top rate | Over £125,140 | 48% |
The rates for 2025/26 are expected to be announced at the Scottish Budget, on 4 December 2024.
Welsh taxpayers
Similarly, you pay Welsh income tax if you live in Wales. The rates set by the Welsh government usually shadow the main UK income tax rates and allowances and this was the case for 2024/25. We expect the 2025/26 rates to be confirmed when the Welsh Budget is published on 10 December 2024.
Tax on savings income
A savings allowance determines how much savings income you can receive at 0% taxation, instead of the usual tax rates for savings income as shown above. This will remain at the 2024/25 level of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.
Interest income from an Individual Savings Account (ISA) continues to be exempt from tax.
Tax on dividend income
A dividend allowance determines how much dividend income you can receive at 0% taxation, instead of the usual tax rates for dividend income as shown above. This will remain at the 2024/25 level of £500.
Dividend income from a ‘stocks and shares’ ISA continues to be exempt from tax.
Individual Savings Accounts (ISAs)
The limit on how much you can save into ISAs (including cash and stocks and shares ISAs) in 2025/26 remains at £20,000 overall. This includes up to £4,000 that can be saved into a Lifetime ISA. The Junior ISA and the Child Trust Fund limit both remain at £9,000. These ISA limits are now fixed until 2030.
Previous plans to introduce an additional ‘British ISA’ allowance will not be taken forward by the new government.
The High-Income Child Benefit charge (HICBC)
You may have to pay the HICBC if you are considered to have ‘high income’ and child benefit is being paid in relation to a child that lives with you, regardless of whether you are a parent of that child. If you are living with another person in a marriage, civil-partnership or long-term relationship, you will only be liable to HICBC if you have the higher income of the two of you.
Since 2024/25 the child benefit ‘high-income’ threshold is £60,000. The HICBC is calculated at 1% of the child benefit received for every £200 of income above the threshold. This means that child benefit is only fully clawed back where income exceeds £80,000.
The HICBC does not apply if the child benefit claimant opts out from receiving the payments.
The new government will not proceed with previous plans to explore a household income basis of calculating the HICBC.
As expected, and with immediate effect from the budget date of 30 October 2024, the rates of capital gains tax (CGT) have been increased on some asset types as follows:
| 2025/26 | 2024/25 | ||
| Annual exempt amount | £3,000 | £3,000 | |
| From 30 October 2024 | Prior to 30 October 2024 | ||
| Rate of CGT on assets other than residential property and qualifying business disposals: | |||
| Within the basic rate band | 18% | 18% | 10% |
| Outside the basic rate band | 24% | 24% | 20% |
| Rate of CGT on residential property disposals: | |||
| Within the basic rate band | 18% | 18% | 18% |
| Outside the basic rate band | 24% | 24% | 24% |
| Rate of CGT on qualifying business disposals: | |||
| Business Asset Disposal Relief (BADR) lifetime limit | £1million | £1million | |
| Rate of CGT on gains qualifying for BADR | 14% | 10% | 10% |
Entrepreneurs will be pleased to learn that Business Asset Disposal Relief (BADR) will continue to apply when they dispose of their business. However, the rate of CGT on BADR qualifying disposals is increasing from 10% to 14% for disposals made on or after 6 April 2025, and from 14% to 18% for disposals made on or after 6 April 2026. These rates apply to the first £1 million of qualifying disposals.
Employers must pay their employees at least the NLW, for workers aged 21 and over, or the NMW otherwise. The minimum hourly rates change on 1 April each year and depend on the worker’s age and if they are an apprentice.
| 1 April 2025 – 31 March 2026 | 1 April 2024 – 31 March 2025 | |
| NLW – age 21 and over | £12.21 | £11.44 |
| NMW – 18-20 year old | £10.00 | £8.60 |
| NMW – 16-17 year old and apprentice | £7.55 | £6.40 |
The percentage increases for the 18-20 year old rate (16.3%) and the 16-17 year old and apprentice rate (18.0%) are significant. This is a step towards Labour’s ambitions for all adults to receive the same minimum wage. While this is good news for workers, employers will need to carefully consider affordability when planning their headcount for the year ahead.
For employees
The national insurance contributions (NICs) rates and annual thresholds for employees for 2025/26 are as follows:
| Employees’ Class 1 NICs | 2025/26 | 2024/25 |
| Lower earnings limit (LEL) | £6,500 | £6,396 |
| Primary threshold (PT) | £12,570 | £12,570 |
| Upper earnings limit (UEL) | £50,270 | £50,270 |
| Earnings between the LEL and the PT | 0% | 0% |
| Earnings between the PT and the UEL | 8% | 8% |
| Earnings above the UEL | 2% | 2% |
Earnings below the LEL are not subject to primary Class 1 NICs and do not accrue entitlement to state benefits. Earnings between the LEL and the PT do accrue entitlement to state benefits and are subject to primary Class 1 NICs, albeit at the 0% rate.
For employers
The Chancellor announced a package of changes to employers’ Class 1 NICs that will apply from 6 April 2025:
* A higher secondary threshold of £50,270 applies for employees who are under 21 and apprentices under 25. Other variations can also apply.
This increase in employers’ NICs is undoubtedly a blow to some businesses and, indirectly, employees. Combined with the increases in the NMW and potential costs associated with reforms in employment law, these measures will stretch employer wage budgets and potentially lead to slower growth in some employee wages or higher costs for consumers.
Benefits in kind
Employees are required to pay income tax on certain non-cash benefits. For example, the provision of a company car constitutes a taxable ‘benefit in kind’. In 2025/26, employers will also pay Class 1A NIC at 15% on the value of benefits (13.8% in 2024/25).
The benefit value of a company car is calculated as a percentage of its list price when it was first registered. The percentage used is determined by the car’s carbon dioxide emissions or, if it is electric, its electric range. The percentages used are set to increase steadily until 5 April 2028, meaning employees with company cars can expect their percentage to increase by 1% in 2025/26 and consequently will pay more tax on their company car. More substantial increases will affect the percentages used from 2028/29 onwards.
The figures used to calculate benefits-in-kind on employer-provided vans, van fuel (for private journeys in company vans), and car fuel (for private journeys in company cars) increase in line with inflation for 2025/26:
| 2025/26 | 2024/25 | |
| Van benefit | £4,020 | £3,960 |
| Van fuel benefit | £769 | £757 |
| Car fuel benefit multiplier | £28,200 | £27,800 |
Uncertainty surrounding the tax treatment of double cab pick-up vehicles with a payload of 1 tonne or more has been addressed: such vehicles that are not predominantly suitable for carrying goods are to be treated as cars for benefit in kind purposes. However, vehicles that were acquired or ordered before 6 April 2025 can be treated as vans until the earlier of disposal, lease expiry, or 5 April 2029.
Tip – If you are considering buying a double cab pick-up vehicle with a payload of 1 tonne or more, acquiring or ordering it before 6 April 2025 could ensure it attracts the more beneficial tax treatment for vans.
The official rate of interest (currently 2.25%) used to calculate the benefit value of employment-related loans and living accommodation will, from April 2025, be allowed to change on a quarterly basis. Previously the rate has been set for a full tax year.
From 6 April 2026, the use of payroll software to report and pay tax on benefits in kind will become mandatory, except in relation to employer-provided loans and living accommodation. These two benefits can be ‘payrolled’ on a voluntary basis.
Motor vehicles
Continuing the topic seen above on double cab pick-up vehicles, a similar change in approach applies in relation to plant and machinery capital allowances claims. From April 2025, most double cab pick-up vehicles with a payload of 1 tonne or more will need to be treated as cars for capital allowances purposes. This is less favourable than the current common classification as a goods vehicle. While the change applies from April 2025, if the expenditure was incurred as a result of a contract entered into before 1 April 2025 for companies, or 6 April 2025 for non-corporate businesses, and the expenditure is incurred before 1 October 2025, it can continue to be treated as a goods vehicle.
Also on motor vehicles, it was confirmed in the budget that the 100% first-year allowance for zero-emission cars will be extended until 31 March 2026 for corporation tax and 5 April 2026 for income tax.
Making Tax Digital (MTD) for Income Tax
Under the government’s MTD for income tax initiative, businesses will be required to keep digital records and send a quarterly summary of their business income and expenses to HMRC using MTD-compatible software. These requirements will be phased in from April 2026, starting with income tax-paying sole traders and property landlords with combined trade and rental income of more than £50,000.
This threshold will be reduced to £30,000 from April 2027 and to £20,000 by the end of this parliament.
Eligible businesses are currently able to opt-in to HMRC’s beta testing programme. Please talk to us if you’d like to know more.
Electronic invoicing
In Spring 2025, the government will launch a consultation about electronic invoicing (e-invoicing) to gather input from businesses on how HMRC can support investment in e-invoicing and encourage uptake within the business community. As part of the government’s digitisation strategy, e-invoicing is likely to be mandatory in future.
Business rates
For 2025/26, retail, hospitality and leisure (RHL) businesses will be given a 40% relief on their business rates. The small business tax multiplier, which applies to properties with a rateable value of less than £51,000, will also be frozen next year.
The government is looking at longer-term measures to support RHL businesses and intends to permanently lower tax rates from 2026/27 for RHL properties with a rateable value below £500,000.
Self-employed individuals pay Class 2 and Class 4 National Insurance Contributions (NICs). The relevant rates and thresholds are:
| 2025/26 | 2024/25 | |
| Class 2 NICs per year – mandatory* | £nil | £nil |
| Class 2 NICs per year – voluntary* | £182.00 | £179.40 |
| Small profits threshold (SPT) | £6,845 | £6,725 |
| Lower profits limit (LPL) | £12,570 | £12,570 |
| Upper profits limit (UPL) | £50,270 | £50,270 |
| Class 4 NICs on profits below the LPL | 0% | 0% |
| Class 4 NICs on profits between the LPL and the UPL | 6% | 6% |
| Class 4 rate on profits above the UPL | 2% | 2% |
* From 2024/25 onwards, Class 2 NICs are effectively abolished. If trade profits exceed the SPT, the individual will accrue entitlement to state benefits such as the state pension. However, if trade profits fall below the SPT, the individual will need to pay Class 2 NICs voluntarily if they need the tax year to qualify for state benefit purposes.
If you let out residential or commercial property, the profits are taxed as part of your ‘other income’. If you sell property that has been rented out, capital gains tax is likely to apply. Generally, rental business activity attracts fewer tax reliefs than trading ventures. However, if a residential property meets the strict definition of a ‘furnished holiday let’ (FHL), enhanced tax relief rules are currently available.
It has been confirmed that, from 6 April 2025, the special tax rules for FHLs will be abolished. Going forward, profits from FHLs will be taxed in the same way as any other rental business.
Please get in touch for a more detailed analysis of how the withdrawal of the FHL status will affect you.
From 1 April 2025, the VAT registration and deregistration thresholds will remain at £90,000 and £88,000 respectively. There have been no changes to the rates of VAT and the standard rate continues to be set at 20%.
In a key change to VAT, private school fees, which have been exempt from VAT, will be made subject to VAT at 20%. This will start from the school term beginning in January 2025.
Rates from 1 April 2025
Corporation tax rates and thresholds for the financial year to 31 March 2026 remain unchanged as follows:
| Financial year to 31 March 2026 | |
| Main rate | 25% |
| Small profits rate | 19% |
| Small profit threshold | £50,000 |
| Main rate threshold | £250,000 |
| Marginal relief fraction | 3/200 |
| Effective marginal relief rate | 26.5% |
The thresholds must be equally shared between companies in a group and those controlled by the same person or persons. If an associated company is dormant, then it is not included in this calculation. However, an associated company with only limited activity would be included, which could lead to higher than necessary effective rates of corporation tax. If you are in this situation speak to us about how you might be able to mitigate this.
Companies with profits between the small profit and main rate thresholds will qualify for marginal relief, which effectively means they pay tax at 19% up to the lower threshold and at 26.5% on the balance of their profits.
Roadmap
A corporate tax roadmap has been published by the government, with the view of creating a stable and predictable tax environment. This includes the following commitments:
Research & Development (R&D) reliefs
The R&D tax relief regime has seen a lot of change in recent years, and the Labour government is committing to the current rates of relief. Since 1 April 2024, this equates to a 20% taxable contribution from HMRC on qualifying R&D expenditure in the “merged scheme” (used by most claimant companies) and, for ‘loss-making R&D intensive SME companies’, an 86% uplift in deductible qualifying expenditure with a 14.5% payable tax credit.
An R&D intensive company is one that qualifies as an SME and at least 30% of its total expenditure is invested in R&D.
HMRC continue to take measures to tackle non-compliance in this area, which has led to a reduction in the number of claims made. They carried out compliance checks on 17% of claims received in 2023/24, compared with 10% for 2022/23. Please talk to us if you are considering making a claim so that we can help you to navigate HMRC’s compliance checks.
Annual Tax on Enveloped Dwellings (ATED)
Companies and some other entities may need to file ATED returns or pay ATED if they hold a UK residential property with a market value over £500,000. The rates of ATED will increase from 1 April 2025 so please contact us if you require any support with this.
Despite numerous rumours of possible changes to the taxation of pensions in the run up to the budget, the Chancellor decided not to make significant changes after all. The ability to receive a 25% tax-free lump sum of up to £268,275 (or higher in some cases) remains.
Individual contributions continue to attract income tax relief at the individual’s marginal tax rate and can be particularly effective where net income is between £100,000 and £125,140, where the personal allowance is tapered.
Employer pension contributions continue to qualify for a deduction against business profits and the rumour that employers’ national insurance would be imposed on pension contributions did not materialise. Note that the £60,000 annual allowance limit continues for 2025/26 and applies to the combined individual and employer contributions.
One change that was however announced was to make an individual’s undrawn pension fund subject to inheritance tax. From 6 April 2027, it is proposed that most undrawn pension funds and death benefits be included within the value of a person’s estate for inheritance tax purposes and for pension scheme administrators to become liable for reporting and paying any inheritance tax due on pensions to HMRC.
INHERITANCE TAX
The main rate of IHT remains at 40%, reduced to 36% for estates where 10% or more is left to charity.
The IHT nil rate band will continue to be frozen at £325,000 until 2030. The additional nil rate band for passing on the family home to direct descendants (residence nil rate band) will also remain at £175,000 until 2030. This means that married couples and civil partners will generally not pay inheritance tax where their combined estate is valued below £1 million. Note however that the residence nil rate band continues to be tapered where the value of the estate exceeds £2 million.
Gifts made by an individual in the 7 years prior to their death are classed as ‘potentially exempt transfers’ and can give rise to an IHT liability on death. Despite speculation in the run up to the budget, there will be no changes to this regime. Furthermore, taper relief continues to apply, reducing IHT payable where there are more than 3 years between the date of the gift and the date of death.
As mentioned above, it is proposed that, from April 2027, most undrawn pension funds and death benefits will be included within the value of a person’s estate for IHT purposes.
Farmers and business owners
The government is proposing to reform IHT agricultural property relief (APR) and business property relief (BPR) from 6 April 2026. Relief of up to 100% is currently available on qualifying business and agricultural assets with no financial limit.
From 6 April 2026, it is proposed that 100% relief will only apply to the first £1 million of combined agricultural and business property, with the relief reducing to 50% on the value that exceeds £1 million. This means the relief will be focused on small family farms and businesses.
In a further proposed change, the rate of BPR available for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM, will be reduced from 100% to 50%.
As an anti-forestalling measure, the new rules will apply to lifetime transfers made on or after 30 October 2024 if the donor dies on or after 6 April 2026.
UK RESIDENCY AND DOMICILE
Significant tax changes have been announced for UK resident non-domiciled individuals; namely those individuals spending most of their time in the UK but without permanently settling here. The concept of ‘domicile’ will be removed from the UK tax system and replaced by a regime based on years of tax residence.
Income and capital gains taxes
At present, individuals who are both resident and domiciled in the UK must pay UK taxes on their worldwide income and capital gains. However, for UK resident non-domiciled individuals, they are able to claim a ‘remittance basis’ of taxation for their overseas income and capital gains and only pay UK taxes to the extent they remit (bring) the associated funds to the UK. To access this favourable tax treatment, non-domiciled individuals may be required to pay an annual ‘remittance basis charge’ of up to £60,000.
The concept of domicile and the remittance basis of taxation will be abolished from 6 April 2025, meaning all UK residents will default to being taxed in the UK on their worldwide income and gains. However, a 100% relief from tax on foreign income and/or capital gains will be available to individuals in their first 4 years of UK tax residence. It should be noted that if a ‘newly arrived’ individual claims this relief, they will sacrifice their UK personal allowance and CGT annual exemption, along with their ability to claim relief for some foreign losses.
From April 2025, for employed individuals eligible for the 100% relief from UK taxation on their foreign income and/or capital gains, an ‘overseas workday relief’ will remain available in relation to their duties performed overseas. Reforms to the regime will however take place, bringing increased flexibility for some but also a new maximum cap on the relief equal to the lower of £300,000 and 30% of total employment income.
Inheritance tax
Currently inheritance tax applies to the worldwide assets of a UK-domiciled individual but, broadly, just to the UK-situated assets of a non-domiciled individual.
From 6 April 2025, individuals resident in the UK for at least 10 out of the last 20 tax years, will be subject to inheritance tax on both their UK and non-UK assets. They will then remain within the full scope of UK inheritance tax for between 3 and 10 years after leaving the UK.
If you have not always lived in the UK, please talk to us about how the new rules will affect you. There may be some exemptions or transitional reliefs that we are able to claim to support your position, including a ‘temporary repatriation facility’ for any overseas funds you may have and ‘re-basing’ any overseas assets you hold to their April 2017 values to reduce any UK capital gains tax arising in 2025/26 and onwards.
England and Northern Ireland – thresholds
It has been confirmed that the 0% thresholds for Stamp Duty Land Tax (SDLT) will be reduced from 1 April 2025 as follows:
| From 1 April 2025 | 1 April 2024 to 31 March 2025 | |
| Main threshold | £125,000 | £250,000 |
| First-time buyers’ threshold | £300,000 | £425,000 |
SDLT on additional dwellings such as second homes
For transactions with an effective date (generally the date of completion) on or after 31 October 2024, the higher rates of SDLT payable by purchasers of ‘additional dwellings’ (i.e. when they already own one dwelling), and by companies, increases from 3% to 5% above the standard residential rates. This measure is clearly targeted at buy-to-let landlords and those acquiring second homes.
The rate of SDLT payable by companies and non-natural persons (e.g. trusts) acquiring dwellings for more than £500,000 increases from 15% to 17% also from 31 October 2024.
Scotland and Wales
Property purchasers in Scotland and Wales do not pay SDLT. Rather, if you buy a property in Scotland you pay Land and Buildings Transaction Tax, and in Wales you pay Land Transaction Tax. No amendments to these transaction taxes have yet been announced.
Interest on unpaid tax liabilities
From 6 April 2025, the late payment interest rate charged by HMRC on unpaid tax liabilities will increase by 1.5 percentage points. For most taxes, this will set late payment interest at the Bank of England base rate plus 4%.
As we approach 2025/26, we know a number of our clients and contacts will be assessing the impact of the budget on their affairs. While some of our readers will benefit from the increases in public spending, for others, especially if you are an employer or business owner, it may be necessary to re-group and update your business plans for 2025 and onwards. Remember, we are here to work alongside you to ensure your business and personal success. Please do get in touch if there is anything that you would like to discuss.
| Date | What’s Due |
| 1 October | Corporation tax for year to 31/12/23 unless you pay by quarterly instalments. |
| 5 October | Deadline for notifying HMRC of chargeability for 2023/24 if not within Self-Assessment and receive income or gains on which tax is due. i.e. to register for Self-Assessment. |
| 19 October | PAYE & NIC deductions, and CIS return and tax, for month to 5/10/24 (due 22 October if you pay electronically). |
| 1 November | Corporation tax for year to 31/01/2024, unless quarterly instalments apply. |
| 19 November | PAYE & NIC deductions, and CIS return and tax, for month to 5/11/24 (due 22/11 if you pay electronically). |
HMRC have recently increased their use of “one to many” or “nudge” letters to taxpayers which suggest that there may be errors or omissions in tax returns or accounts information. HMRC argue that these letters are a key tool in their compliance strategy but this is essentially a “fishing” expedition more akin to direct mailing and this may alarm many taxpayers who are completely innocent. Please get in touch with us if you receive such a letter and we can deal with the matter on your behalf.
The current State Pension is £11,502 and is due to rise to around £12,000 a year for 2025/26. At current annuity rates it would cost over £300,000 to receive an index-linked annuity starting at £12,000 a year, so it’s important to maximise your entitlement.
In order to receive a full State Pension you need 35 qualifying years, but is it worth topping up voluntary Class 3 National Insurance contributions in respect of missing years? This is a financial decision but there is a short breakeven period. It is around 3 years for employees and even shorter for the self-employed who can pay Class 2 contributions for missing years. You can also get credit for missing years if you were not working because of bringing up children.
Employees need to make Class 3 contributions of £824.20 or £907.40 a year for extra years which yields £302.86 a year in additional annual state pension. Self-employed individuals can pay Class 2 contributions at the rate of £179.40 for each missing year to yield £302.86 per annum.
Normally you can only go back six years to make up missing contributions but there is currently an opportunity to fill up missing years going back to 2006/07 – note that the deadline for the extended carry back is 5 April 2025.
Changes to pension tax relief seems to be top of the list of possible changes in the Budget and could yield more tax revenues than changes to CGT and IHT combined. As recently as 6 April 2023, we saw the abolition of the lifetime allowance charge and a significant increase in the pension annual allowance to £60,000 a year, which Rachel Reeves commented were too generous, so we may see those changes reversed or curtailed.
Possible changes to pensions to listen out for include:
Pension changes normally take effect from the start of the tax year on 6 April, however there have been mid-year changes in the past. Taxpayers should therefore consider bringing forward pension planning just in case changes are effective from the date of the announcement.
Many over 55’s can withdraw 25% of their pension fund tax-free
Under current pension rules, many pension funds allow pension scheme members to withdraw up to 25% of their pension savings tax-free. Finance Act 2023 limited the tax-free amount to £268,275 unless the individual had applied for protection at a higher amount. There are rumours that the tax-free amount may be further limited, with an amount of £100,000 suggested, and this has resulted in significant withdrawals from pension funds in recent weeks. It should be noted that there are anti-avoidance rules that limit the amount that can be reinvested in the pension fund within a 12 month period.
Pension lump sum “recycling” is countered by anti-avoidance rules where the lump sum withdrawn is more than £7,500 during a one year period and subsequent pension contributions are increased by more than 30% of the lump sum. A breach of this rule will mean that the lump sum is an unauthorised payment and will be taxed at 40%.
Many commentators are suggesting that the rate of CGT might be aligned with the rates of income tax, a return to the regime that applied when Gordon Brown was chancellor. Rachel Reeves is known to be a disciple of Gordon, so maybe we will see a return to taper relief as well! One would hope that Business Asset Disposal Relief (BADR), or something similar, is retained to encourage entrepreneurship and growth. She might even reintroduce Business Asset Taper, one of Gordon’s ideas, to reduce the effective CGT rate to 10% after 10 years’ ownership? If some form of CGT relief to encourage entrepreneurs is retained then maybe the conditions for obtaining the relief will be tightened still further?
Other possible changes to CGT to listen out for include further restrictions to private residence relief and changes to hold over relief for transfers into and out of trust. A more controversial change would be the removal of the CGT free uplift to probate value on death, with beneficiaries inheriting the deceased’s CGT base cost of their assets, as suggested by the now abolished Office of Tax Simplification (OTS).
Should we bring forward asset disposals before budget day?
CGT changes normally take effect from 6 April, but there have been mid-year changes in the past. This possibility has caused many taxpayers to bring forward disposals to take advantage of the current rates. The disposal date for CGT is the date of unconditional exchange of contracts and there is likely to be anti-forestalling legislation to counteract attempts to artificially bring forward the disposal date. There is still time to sell listed investments before 30 October but other assets such as a business or property typically take a lot longer to sell unless a buyer is already lined up.
Beware “bed and breakfast” anti-avoidance
Many investors may be looking to realise capital gains on their investments at the current rates, just in case there is an increase with effect from 30 October 2024. They may then wish to repurchase those investments after the change in rates to retain the balance of investments in their portfolio. Where the same shares and securities are bought back within 30 days of the date of disposal, the shares bought back would be matched with those sold and the desired capital gain and increase in base cost may be negated.
For example, if 1000 shares in A plc were bought for £2 a share several years ago and are sold on 29 October 2024 for £4.50 a share there would be an apparent £2,500 capital gain, potentially tax free if the £3,000 2024/25 CGT annual exemption is unused. However, if the same class of shares in A plc are purchased on say 5 November 2024 for £4.45 a share there would be a £50 capital loss instead of the desired capital gain and the base cost would remain at £2 a share. This is because the repurchase is within 30 days.
An alternative strategy would be for the taxpayer’s spouse to repurchase the shares (“bed and spousing”) or to repurchase the shares in the taxpayer’s ISA or pension fund.
