The Autumn Budget has been announced, and as anticipated there have been changes to both Inheritance Tax (IHT) and Capital Gains Tax (CGT) that could have substantial implications for your estate and lifetime planning. The chancellor has also announced substantial changes to tax treatments of Alternative Investment Market (AIM) schemes, Agricultural Property Relief (APR) and Business Property Relief (BPR)
Below, the Private Client team at Burnett Reid recap the changes to inheritance tax (IHT) and capital gains tax (CGT) and break down what it means for you and how to navigate the changes. Should you need help navigating the upcoming changes, our Aberdeen and Banchory based team of expert solicitors are ready to assist you to ensure your financial plans remain robust and effective.
Changes to Inheritance Tax (IHT)
“Only 6% of estates are subject to Inheritance Tax” the Chancellor noted while introducing the new "balanced" approach to the latest tax adjustments in this year's Autumn Budget.
Inheritance Tax Freeze
Significant changes to Inheritance Tax have been introduced, with the IHT threshold freeze extending for an additional two years, now remaining in place until 2030.
Under this freeze, the first £325,000 of an estate can be inherited tax-free. This amount rises to £500,000 if the estate includes a residence passed to direct descendants, and up to £1 million when a tax-free allowance is transferred to a surviving spouse or civil partner.
Inheritance Tax on Gifts
It's important to highlight that, despite media speculation, there were no changes to the 7-year gifting rule. The rule remains unaltered, meaning gifts made more than seven years prior to death should not be subject to Inheritance Tax (IHT), subject to the Gift with Reservation of Benefit rules.
Additionally, from April 2027, inherited pensions will be subject to inheritance tax. This development requires closer examination of how pensions are included in your estate planning strategy.
Pensions and Inheritance Tax
To date, pensions haven't been included in the calculation of your total assets subject to Inheritance Tax (IHT), but this is set to change. Starting from 6 April 2027, any unused pension funds and death benefits from a pension will be deemed part of your estate for IHT purposes.
This means that the value of your pension will be added to your other assets. If the combined value exceeds the IHT threshold of £325,000 (subject to other applicable exemptions), it could be taxed.
This change may bring more people into the scope of IHT, especially those with unmarried partners. Unlike married couples or civil partners, who can pass their estate to each other tax-free, benefits paid to an unmarried partner might incur IHT charges. Consequently, surviving unmarried partners could end up with less income in retirement.
Changes to Capital Gains Tax
Rise in Capital Gains Tax Rates
The Chancellor also announced an increase in Capital Gains Tax, with the lower rate rising from 10% to 18%, and the higher rate increasing from 20% to 24%. These rates apply to profits from selling assets such as a second home or investments, including shares.
However, these changes will not affect the CGT rates on the disposal of your home, which will remain unchanged.
Changes to Business Asset Disposal Relief
Additionally, the tax on Business Asset Disposal Relief will see increases over the next two years, though the £1 million limit for qualifying gains will remain the same.
Despite these increases, the UK will maintain the lowest CGT rate among G7 economies. This positioning could provide unique advantages for UK taxpayers managing capital gains strategically, especially when compared to international standards.
Changes to AIM Schemes, APR, and BPR
Another of the major updates announced by the Chancellor involves the tax treatment of the previously popular Alternative Investment Market (AIM) schemes with the Chancellor announcing a 50% relief on Inheritance Tax for Alternative Investment Market (AIM) shares. This reduces the effective tax rate on AIM-traded shares to 20%.
The Chancellor has also announced reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR). Starting April 2026, the first £1 million of combined business and agricultural assets will remain exempt from IHT. However, for assets over this threshold, a 50% relief will apply, resulting in an effective tax rate of 20%.
What You Should Do Now
With the revised tax treatments, it's more important than ever to review your estate and lifetime planning strategies sooner rather than later. Early planning can help you take advantage of any transitional arrangements and ensure your financial goals are met efficiently.
The announced changes may impact the benefits previously available, making it vital to reassess your plans promptly.
Our experienced Private Client team at Burnett Reid is on hand to guide you through these new regulations. We can offer a comprehensive review of your current estate and lifetime planning strategies to identify any necessary adjustments.
With our expert advice, you can navigate these changes confidently and continue to protect your wealth for future generations.
Contact us today to arrange a consultation and ensure your estate planning strategies are up to date and aligned with the latest tax regulations.
