Potential changes to inheritance tax and capital gains tax in the Budget

Charlotte Coombs, Legal Director in Birketts LLP’s Private Client Advisory team, assesses the growing uncertainty ahead of the Budget and outlines why individuals and business owners should review their affairs as key inheritance and capital gains tax reliefs face potential further change.

Charlotte Coombs, Legal Director in the private client advisory team at Birketts LLP:

“There has been a great deal of speculation but until Rachel Reeves delivers the Budget , nothing is set in stone. It would be sensible to keep all affairs under review in order to take advantage of existing reliefs while being mindful of further changes.”

Inheritance Tax

“The Autumn Budget in 2024 (2024 Budget) saw radical reforms to the critical reliefs of Agricultural Property Relief (APR) and Business Property Relief (BPR) for inheritance tax which are due to come in from 6 April 2026. These reliefs are extremely valuable for business owners and entrepreneurs operating a trading business or those owning agricultural assets.

News of further potential changes to the reliefs in the 2025 Budget has brought further uncertainty at what is already a hugely uncertain time. There are indications that the Centax Report (https://centax.org.uk/policy-brief-the-impact-of-changes-to-inheritance-tax-on-farm-estates/) is being reviewed by the Treasury and therefore while we have the draft legislation setting out how the proposed changes will be brought into force, further changes could be made. This may bring some welcome news to some but could cause even greater uncertainty for others.

In addition to tweaking further the APR and BPR reliefs, there is speculation that there will be changes to the rules concerning lifetime gifting in the 2025 Budget, whether by imposing a cap on the value of lifetime gifts, amending the taper rules (these apply if someone dies within seven years of making a gift and the rate at which inheritance tax is due decreases after year three) or extending the seven-year time period.”

Capital Gains Tax

“In the 2024 Budget, the Chancellor increased the rates of capital gains tax as well as making changes to Business Asset Disposal Relief.

Among the possible areas of change in tomorrow’s announcement are a mansion tax whereby homes exceeding £1.5 million would no longer benefit from principal private residence relief when they come to sell, as well as the future of holdover relief and rollover relief which can be valuable for all, but particularly those in a business context.”