With the Government expected to increase taxes in the next Budget on October 30, in this article we’ll be exploring the potential changes to the tax rules that you should consider planning for.
While the Government has committed to not increasing income tax, national insurance, or VAT, significant changes to both Capital Gains Tax (CGT) and Inheritance Tax (IHT) could still occur.
What is likely to change?
CGT rates may increase to bring them closer in line with income tax rates, potentially impacting families that were planning to gift property and assets to their children.
There may also be changes made to IHT reliefs. Currently, shareholdings in AIM-listed companies are not subject to IHT as families have the ability to claim business property relief (BPR) on them. In 2020/21, families saved £2.6bn on IHT by claiming BPR on unlisted shares, with a substantial amount coming from AIM shares.
Consider gifting holiday homes now to beat CGT rate increases
To prepare for potential CGT rate increases, families might want to consider gifting assets like holiday homes sooner rather than later.
While many people plan to gift holiday homes to their children at some point in the future, rising CGT rates make it worth acting now. Often holiday homes (which typically stay within a family for generations), have appreciated greatly since they were purchased or inherited – which could mean a significant and unpleasant surprise when it comes to paying capital gains tax.
It may be better to consider dealing with that bill now rather than later, when CGT rates may be higher.
Making an investment in your children’s business to save on IHT
Many families hold shares in AIM-listed companies as part of their inheritance planning. However, they may want to consider alternatives ahead of the Budget.
If the Government were to remove or limit the BPR that families could claim on these shares, those plans may be impacted.
An alternative could be to purchase shares in privately-owned traded businesses owned by family members. This not only supports your children’s business growth but also reduces the risk of BPR restrictions impacting your inheritance plans. Given the high levels of self-employment and entrepreneurship in the UK, this option could benefit many families.
Although it requires careful consideration, especially if the business is not wholly owned by family members, it can be an effective alternative for those who look to the AIM market for their inheritance tax planning.
How TWM can help you
If you are considering your tax planning ahead of the Budget, our specialist private client solicitors can help you navigate the various options available to protect your interests and secure your financial future.
For further details about our Inheritance Tax planning services, please contact our Private Client team today for an initial no-obligation consultation.