Navigating the Upcoming Budget

As the new Chancellor, Rachel Reeves, prepares to deliver the first budget of the new government on Wednesday 30 October, there are significant anticipations regarding the focus areas of the forthcoming tax strategy. With likely changes in Pensions, Capital Gains Tax, and Inheritance Tax, it is crucial to consider pre-emptive actions to safeguard your financial interests. Chris George, Tax Partner outlines some of the practical steps you can take in consultation with your financial adviser and accountant.

Pensions – Maximising Your Contributions

If you are a higher rate taxpayer making personal pension contributions before the budget announcement could be advantageous. There is widespread speculation that higher rate tax relief on pension contributions may be restricted to the basic rate. To ensure you secure the current level of relief, consider making your contributions sooner rather than later.

Other potential changes could include taxing a portion of the tax-free lump sum on pensions and altering the inheritance tax advantages of pension pots. Engaging closely with your financial adviser and accountant will be essential to navigate these possibilities and make informed decisions.

Capital Gains Tax – Timing Your Transactions

Anticipations are high that the Capital Gains Tax (CGT) rate will increase, potentially aligning with income tax rates. Additionally, the valuable Business Asset Disposal Relief, which currently allows eligible gains up to £1 million to be taxed at 10%, may be at risk of removal. Here are some steps to consider:

• Business Sales: If you are in the process of selling your business, aim to conclude the transaction before 30 October to lock in the current reliefs. If selling to a third party, it may be challenging to complete by the budget date, but it would be wise to explore your options and initiate conversations.
• Family Reconstructions and Buyouts: Accelerate discussions regarding family reconstructions, management buyouts, or employee ownership trusts.
• Loss Realisation: If you hold assets that are likely to incur a loss upon disposal, consider crystallising these losses for potential future tax benefits.
• Gifting Assets: Evaluate the benefits of gifting assets under the current holdover relief rules in case of any future restrictions.
• Death Uplift: Consider the implications of potential changes to the death uplift of assets to market value and take action during your lifetime if necessary.

Inheritance Tax – Preserving Your Estate

The budget may also bring changes to inheritance tax reliefs, particularly Business Property Relief (BPR) and Agricultural Property Relief (APR). With the possibility of these reliefs being reduced or removed, consider earlier gifting strategies to mitigate concerns over these valuable inheritance tax reliefs. Always factor in non-tax considerations when planning your estate.

Budget Event – 31 October 

Join our team of experts on Thursday 31 October who will deliver their take on the Labour government’s announcements and anaylse how it will impact personal and business finances.

Register your interest in attending the event here.

A version of this blog originally appeared on the website of Sumer member firm EQ Accountants.