For those whose principal interest in the Chancellor’s Budget announcements today surrounds what changes might be made to personal Capital Taxes (i.e. Inheritance Tax and Capital Gains Tax), the Budget ultimately was largely unremarkable, and perhaps the most striking feature of the day was that the Budget itself appears to have been accidentally leaked by the Office for Budget Responsibility a couple of hours before Rachel Reeves stood up to give her speech in the Commons. Red faces all round for that one!
Inheritance Tax (IHT)
The Chancellor confirmed that the proposed changes to the treatment of agricultural and business property intended to take effect from 5 April 2026 will be implemented. In the main, this means that from 5 April 2026, the rate of relief on agricultural and business property, currently 100%, will be reduced to 50%, but with an initial ‘cap’ of £1,000,000 which will still be entitled to the old 100% relief.
A big change announced today is that the personal £1,000,000 ‘cap’ will be transferable between spouses. This is something which we had already been advising could be achieved by use of complex and expensive wills, so it will be a great relief to farming and business families to know that the £1,000,000 ‘cap’ will be transferable in this way; what this means in practice is that if a husband and wife own a farm or a business together, which is worth, say, £2,000,000 and the first of the spouses to die leaves their estate to the second, then on the death of the second spouse, there will be a total £2,000,000 of business or agricultural assets which will be entitled to 100% relief and only the balance, if any, will have the lower relief of 50%.
Other potential changes to IHT which had been widely feared. These included an extension of the cumulation period (during which potentially exempt transfers will still become subject to IHT) from seven years to ten years, and also potentially a limit on the lifetime total of potentially exempt transfers (gifts). Neither of these have been proposed.
The change to the treatment of unused pension funds has been confirmed; these will be treated as part of a deceased person’s estate and subject to IHT from April 2027. The tax and estate planning industry has highlighted many potential problems with the implementation of this proposal and, no doubt in reaction to this industry response, various changes to the proposals have been made, intended to simplify the administration of IHT where estates are deemed to include unused pension pots. The changes will also restrict the liability of executors to IHT where pension pots are discovered after an estate has been completed and after IHT clearance has been obtained, which had been identified as a potentially serious problem.
The effect of fiscal drag, however, has not been overlooked for the IHT threshold of £325,000 (the amount an individual is allowed to leave before IHT is charge) which has remained unchanged since 2009 will, it was today announced, remain in place until 2031.
As is often the case at Budget time, there are fears that the benign IHT treatment of Deeds of Variation might be removed, but this has not been proposed.
Pensions
There was much concern before the Budget that there would be significant changes to pensions, including possibly restricting the tax-free cash lump sum or a restriction on tax relief on payments into pension funds. Most pensioners will surely be relieved to learn that the cash-free lump sum of 25% has not been changed and those changes to allowances and relief for payments into pensions have been relatively modest in restricting the availability of ‘salary sacrifice’ for payments into pension schemes, to take effect from April 2029.
Capital Gains Tax (CGT)
Changes to personal CGT are relatively modest. The rate of CGT payable on qualifying Business Asset Disposals has been confirmed will increase to 18% in April, but no other significant changes to CGT rates or allowances for individuals have been proposed. For those clients, however, who have invested in Buy to Let properties, they will find the tax they pay on rental income receipts has been increased by 2%, the same applies to those who benefit from investment income. The former will take effect from April 2027 and the latter from this April.
Summary
Overall, so far as personal Capital taxation is concerned, the changes in today’s Budget have been relatively modest but, as ever, timely advice is important and for further advice or assistance please contact our Legal Inheritance Tax Solicitors today by calling 0118 9780099 or using our Contact Form and we will respond quickly.
Speak to one of our legal Inheritance Tax solicitors today by calling 0118 978 0099 or using our contact form and we will respond quickly.
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Peter McGeown is Joint Head of our Wills and Inheritance team and has nearly 40 years’ experience advising on tax, wills and estate planning. As an Officer at the Inheritance tax Office of HMRC before qualifying as a solicitor, he has a unique perspective on estate planning for our clients.