Capital Gains Tax

Capital Gains Tax is a tax payable on an asset that has increased in value since acquisition. In the private client world, this often affects the sale of shares and properties following a death. Historically, there has been a higher rate of tax applied on gains relating to property, but now with immediate effect, there will be a standard rate applicable of 18% for basic rate taxpayers and 24% for higher rate taxpayers for all chargeable assets including shares and residential property disposals.

There are allowances that can be used to offset a Capital Gains Tax liability which remain unchanged following this Budget, but it wasn’t that long ago that they were curtailed by the last Conservative government so that now individuals and personal representatives only have £3,000 to offset against a gain in 25/26 and trustees £1,500 in 25/26.

Freezing the Nil Rate Band and Residence Nil Rate Band Thresholds

Inheritance Tax is a tax charged on the value of assets above the relevant inheritance tax threshold. There were rumours prior to the Budget that certain Inheritance Tax Allowances might be abolished, but instead the Chancellor has taken the decision to freeze the nil rate band and residence nil rate band to 2030.

The Nil Rate Band is an Inheritance Tax allowance which provides that the first £325,000 of a person’s estate will be subject to Inheritance Tax at 0% with the balance over £325,000 being subject to tax at 40% (or 36% if a certain amount is left to charity).

The Residence Nil Rate Band provides individuals with an additional allowance of up to £175,000 (depending on the value of the property) where any inheritance tax will be chargeable at 0%, subject to certain conditions being met.

This means that individuals who meet the criteria to claim the Nil Rate Band and the Residence Nil Rate Band will have an allowance of up to £500,000 to offset against any inheritance tax that might otherwise be due.

The unused allowances are transferable between spouses and civil partners, so potentially on the survivor’s death £1m in allowances could be claimed.

Freezing the inheritance tax thresholds will probably result in an increase in inheritance tax receipts due to the increasing value of property and investments, but no increase in the thresholds available to offset.

Agricultural Property Relief (APR) & Business Property Relief (BPR)

Labour have also introduced some quite significant changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) whereby the new combined relief will be capped at £1m from April 2026.

This is likely to have a huge impact on the farming industry and family businesses who might find that they now need to sell farming or business assets to pay the tax.

Previously APR and BPR were seen as tax allowances that would protect farmers and business owners from having to sell assets to pay the tax following a death which would enable them (in most cases) to continue running the farm or business.

Pension Funds

Prior to the Budget, pensions and death benefits from a pension could usually be disregarded for inheritance tax purposes, but now these funds will be considered when calculating an individual’s inheritance tax position. When these are paid out, these are usually quite significant sums of money, so these changes are again likely to lead to more estates having to pay inheritance tax.

Next Steps...

If you are unsure whether the above changes effect you and your Will, please call us on freephone 0800 011 6666 or email legal@timms-law.com.