Budget 30 October 2024 Possibilities for Capital Taxes

With elevated public debt and struggling public services, it seems clear that the changes will focus on laying the groundwork for tax increases and spending cuts in order to try and address that £22bn black hole of overspend from this year alone.

Inheritance Tax

The previous government made promises about increasing the Inheritance Tax (IHT) allowances on second death for married couples to £1m and they took their time in doing so, only introducing the residential nil rate band until 2017 incrementally so the full allowances were only claimable from 2020. Despite the increase in exemptions, inheritance tax revenue is at an all-time high with receipts of £7.5bn. Will the chancellor deem that its middle England’s time to feel the tax pinch? Reform options could include:

• Abolishing the residential nil rate band, which will result in an additional £140,000 for spouses on the second death, seems likely. Especially as this is a relatively recent exemption.
• Reducing or capping the current 100% relief for Agricultural or Business Property or tightening the criteria to make it more difficult to claim.
• Increasing the rate of IHT for larger estates to say 50%.

Capital Gains Tax

Capital Gains Tax (CGT) rates are at a historic low so increasing them would be an obvious choice. Other options could be:

• Bringing CGT back in line with Inheritance Tax (IHT) to 40%.
• Reviewing some of the most used exemptions, for example, putting a threshold on private residence relief at say £2m.
• Scrapping holdover relief is often used when transferring assets into discretionary trusts.

The other concerning consideration is when they will deem the changes to take effect. Will it be from budget day or will individuals have some time before the next tax year to make disposals, this could result in a mass sell-off of assets which would provide a short-term boost for CGT revenues.

Of course, we can only speculate at this stage but we do know that changes to personal circumstances and legislation are constant. Having regular reviews and undertaking tax planning exercises will give you the bespoke information and you can then choose the best options for your own personal circumstances.