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Anticipated tax adjustments in the upcoming budget: what to expect

Anticipated tax adjustments in the upcoming budget: what to expect

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With the October budget approaching, many are anticipating possible increases in Capital Gains Tax (CGT) and Inheritance Tax (IHT). Chancellor Rachel Reeves has hinted at “difficult decisions” that could impact key reliefs, including Business Property Relief (BPR) and Agricultural Property Relief (APR). These potential changes are especially relevant for those involved in estate planning and asset management, where these reliefs play a crucial role in reducing tax liabilities.

Key Anticipated Changes 

  • Possible increases in Capital Gains Tax (CGT) and Inheritance Tax (IHT).
  • Potential changes to Business Property Relief (BPR) and Agricultural Property Relief (APR).
  • Likely impacts on estate planning strategies for business and agricultural properties.

Charlotte Keating, Head of Private Client Manchester, shares:

“Whilst we do not have a crystal ball and cannot confirm the changes that will be brought in by the October budget, we can be certain that substantial changes to Capital Gains Tax (CGT) and Inheritance Tax (IHT) and currently available reliefs, such as Agricultural Property Relief (APR) and Business Property Relief (BPR), will have a significant impact upon many estate planning strategies that clients have in place today to mitigate their liability to those capital taxes. 

It would be hoped that any changes to Capital Gains Tax (CGT) and Inheritance Tax (IHT) and reliefs available would become effective in the new tax year, thereby giving clients the opportunity to seek appropriate advice in light of impending changes, however, we must be mindful that this is not guaranteed.”

How to Prepare for Potential Changes: 

  • Clients with business or agricultural property should seek professional advice about taking advantage of current reliefs before any changes.
  • Consider estate planning steps to crystallise current reliefs and tax rates available now.
  • All clients with significant capital assets should seek advice post-budget to review their current estate planning strategies to ensure that they remain effective and make changes where required.

The government’s challenge is to address a significant financial deficit, which may result in increased tax burdens for those with substantial assets. This prospect has led to heightened concern among financial advisors and legal professionals, who are closely monitoring developments and advising clients to be proactive in their planning. The expected changes could complicate tax strategies, requiring a more nuanced approach to estate management.

Potential Changes to Business Property Relief and Agricultural Property Relief 

Both Business Property Relief (BPR) and Agricultural Property Relief (APR) are essential tools for reducing the tax burden on estates involving businesses and farms. However, the upcoming budget could introduce tighter regulations, limiting their benefits or making it more challenging to qualify.

Why These Reliefs Matter: 

  • Business Property Relief (BPR) and Agricultural Property Relief (APR) currently help business owners and farmers transfer assets without a large inheritance tax burden.
  • Without these reliefs, estates may face higher tax liabilities, potentially requiring the sale of family businesses or farms to settle tax bills.

John-Paul Dennis, Head of Private Client Liverpool, notes:

“The anticipated changes could lead to these businesses and farms being split up or sold off to settle an inheritance tax bill when the longer-term contribution to the economy far outweighs any short-term gain by the Treasury. 

This feared shift would lead to higher inheritance tax liabilities, prompting a necessary reassessment of current estate planning. For businesses and families with significant holdings, it is crucial to stay informed and proactively adjust tax strategies to mitigate potential financial impacts.”

Next Steps: Proactive Estate Planning 

In light of the potential changes, proactive planning is crucial. By staying informed and adjusting your estate planning strategies, you can better navigate the shifting tax landscape and mitigate potential financial impacts.

Key Actions to Take 

  • Stay informed about potential changes to Capital Gains Tax (CGT), Inheritance Tax (IHT), Business Property Relief (BPR) and Agricultural Property Relief (APR)
  • Consult an estate planning professional to review or adjust your strategy.
  • Be prepared to make adjustments as new information from the October budget becomes available.

If you wish to discuss future changes to Inheritance Tax and how this affects your estate or clients, plan accordingly and get in touch with Charlotte Keating at Charlottek@prosperitylaw.com, John Paul Dennis at JPD@ProsperityLaw.com or give us a call at 0161 667 3686 (Manchester) / 0151 958 0057 (Liverpool).

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