Increased Capital Gains Tax (CGT) rates and BADR restrictions
It came as little surprise to most that the Chancellor announced immediate increased CGT rates for individuals disposing of assets while also restricting the much-valued Business Asset Disposal Relief (BADR). The lower and higher rates of CGT increased from 10% and 20% to 18% and 24% respectively, in line with rates that were previously applicable only to residential property sales.
Those hoping to avail of BADR on the disposal of their first £1m of qualifying business assets at the current tax rate of 10% can still do so provided the disposal takes place on or before 5 April 2025. The applicable rate of tax will rise to 14% and 18% over the following two years on such disposals.
Given that CGT rates did not increase to the levels feared by some during the weeks and months prior to the Autumn Budget, transactions are likely to continue post-Budget as normal. Investors are, however, likely to remain vigilant to the potential for further rate hikes in the future.
Employers’ NIC rate increases and allowances
As also expected, employers will face increased NIC rates from 6 April 2025, with the secondary NIC rate rising from 13.8% to 15% and the threshold at which employer NICs become payable decreasing from £9,100 to £5,000 annually. To mitigate the impact on small businesses, the Employers’ National Insurance Allowance will increase from £5,000 to £10,500, and the eligibility threshold for the allowance will be removed.
It is estimated that around 865,000 businesses will pay no NICs at all however, together with the announced increase in the National Living Wage to £12.21 per hour from April 2025, many businesses will have to pass on the additional cost via increased prices and lower staff pay-rises.
Inheritance Tax (IHT) relief reforms for businesses and farms
The biggest shock of the Budget came in the form of significant restrictions to IHT reliefs for UK business owners and farmers. The Chancellor announced that Business Property Relief (BPR) and Agricultural Property Relief (APR) will undergo major reforms, effective from 6 April 2026. A new £1 million allowance will apply to the combined value of qualifying assets, with relief available at 100% and the excess over this limit subject to IHT with a reduced rate of relief of only 50%. To prevent forestalling, the reforms will also apply to lifetime gifts made after 30 October 2024.
Since 1992, when John Major increased the rate of BPR and APR from 50% to 100%, IHT has not been payable on most trading businesses and farms, enabling many such family-owned enterprises to continue trading after a death without having to consider a potential sale of part or the whole of a business in order to pay IHT.
The changes announced by the Chancellor will place a heavy burden on family businesses and farms (the bedrock of the private sector in Northern Ireland). Their owners will need to carefully consider how the eventual IHT charge will be paid. In many cases, the business will be required to fund the liability out of post-tax profits and further tax charges may arise on extracting funds where these are in a company. Equally, where business assets have historically been placed in family trusts for succession purposes, IHT will now become due at each 10-year anniversary of the trust.
The reforms will undoubtedly cause business owners and farmers serious concern. Having a plan in place that ensures funds are available and minimises the overall cost will be crucial to helping businesses and farms survive beyond the current generation. Earlier lifetime gifting may become more attractive, and it will be vital that wills are reviewed to ensure the £1 million non-transferable allowance is not lost on first death where the estate passes to a surviving spouse.
The Chancellor announced further IHT reform by bringing pensions into the IHT net. From 6 April 2027, unused pension funds and death benefits will be included in the IHT calculation. The change applies to most pensions, with pension administrators being responsible for reporting and paying any IHT due.
Navigating the challenges of rising tax burdens
The Autumn Budget announcements represent a significant shift in tax policy with increased rates for capital gains, changes to inheritance reliefs, and higher costs for employers. While the Government has aimed to balance these changes with support for lower-income workers through wage increases, businesses may face challenges adapting to the rising tax burden.
As always, it is advisable for individuals and businesses to review their circumstances considering these changes.
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