Is there any tax planning I can do ahead of the 30th October Budget Day?
A tax lecturer at a seminar we were at last week said “if you come out of the Budget without being worse off, you have probably done well”. Hopefully it might not be that bad, but we have been warned to expect tax rises. Whilst we do not know exactly what the changes will be, or when they will take effect, there are several key areas you should be thinking about now in order to prepare.
Personal Tax
Pension Contributions: There is much speculation about potential changes to tax relief on pension contributions and how the income is taxed. Changes which could be made include reducing tax relief on pension contributions for higher earners and taxing the currently tax free 25% lump sum withdrawals. Changes to how pensions are taxed in an estate and on beneficiaries after the policy holder dies may be introduced.
If you were thinking of taking a 25% tax free withdrawal in the near future or are considering substantial contributions in this tax year, it might be prudent to seek advice from a financial adviser as soon as possible so that any appropriate action can be taken before Budget Day.
Capital Gains Tax (CGT): This is another area where changes are likely. The rates of tax for CGT might be increased by aligning them with the rates for Income Tax or creating a single capital gains rate. Some reliefs may be abolished or amended.
You could consider bringing forward the disposal of an asset, taking advantage of current tax rates. This would also have the unwelcome effect of bringing forward tax liabilities which also needs to be factored in. As a word of warning, if you are thinking of selling and buying back shares in order to realise a gain before Budget Day, please be aware that there is an anti-avoidance rule which matches a reacquisition of shares in the same company within 30 days of the disposal. You would need to leave more than 30 days before re-purchasing the shares for this to be effective. Other options would be having your spouse re-acquire the shares or ‘Bed and ISA’ where you transfer the shares into an ISA or ‘Bed and Pension’ where you transfer the shares into your pension (subject to you having enough net relevant earnings and annual allowance to do so). We would recommend taking appropriate advice before taking any of these steps.
Another possibility for raising taxes would be to abolish the rule which allows asset values to be reset for CGT purposes on death. Assets sold during probate would then be liable for CGT.
Income Tax: We are not aware of any likely changes to the rates of Income Tax or the previous announcements that the personal allowance is to be frozen. However, nothing is certain until the day.
Inheritance Tax (IHT)
Uncertainty surrounds what changes might be announced. Suggestions have been the nil rate band being amended, the 7-year gift rule being changed, removing the beneficial treatment of AIM shares and changes in the rate of tax. Any reforms might have a significant impact on estate planning. Whilst we do not recommend making large changes purely on a speculative basis, you could consider making lifetime gifts before Budget Day, although you should take advice on the IHT and CGT implications beforehand. Please get in touch to see what options you have.
Potential Business Tax Considerations
Corporation Tax: Currently small companies with less than £50,000 of taxable profits pay 19% corporation tax, rather than the main rate of 25%. It appears that there are no plans to increase the main rate but it is unclear what plan there is for the 19% rate. If this is increased to align with the 25% main rate disincorporation to trade through a partnership or as a sole trader may become a more attractive option. This is something to review after the Budget.
Furnished Holiday Lets: Changes from April 2025 have already been announced which affect both Income Tax and Capital Gains Tax. As we believe the measures will increase tax revenue, it seems probable that these changes will go ahead as planned.
Gift Holdover Relief: This relief allows business assets to be gifted with no CGT liability, by deferring the gain to the recipient, effectively reducing their base cost. This can be useful when used in conjunction with IHT planning with its significant tax benefits, which is why the relief might be altered in the Budget. If you are thinking of gifting family company shares or other business assets down a generation, is this something you would consider before Budget Day?
Other changes
It has been well publicised that VAT will be charged on private school fees from the beginning of next year and private schools will have their business rate charitable rates relief will be removed.
Motoring taxes could change, which might affect fuel duty, Benefit in Kind charges for company cars and a new road tax system on a ‘pay per mile’ system.
Alcohol and tobacco duty might increase
How can we help?
Please speak to us so we can discuss with you how any potential changes might affect you and what tax planning strategies there might be in your individual circumstances.
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