The start of the new tax year is an ideal opportunity to consider your tax planning and ensure that you are prepared for the tax year ahead. Careful planning is particularly crucial this year in light of the significant taxation changes introduced by the Labour government in the October 2024 Autumn Budget.
This article has a particular focus on the changes to capital gains tax and inheritance tax for business and agricultural land owners.
Capital gains tax (“CGT”)
Despite the reductions in the relief that were introduced in the 2024 Autumn Budget, business asset disposal relief (“BADR”), formerly entrepreneurs’ relief, still offers valuable tax breaks to business owners. From 6 April 2025, any CGT arising on the disposal of qualifying business assets (for example, private company shares or interests in a trading business) is taxed at a rate of 14% (as opposed to 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers which applies to other types of asset disposals). The relief is capped at a £1 million lifetime limit, meaning the first £1 million of gains on the disposal of a qualifying business asset will benefit from the lower 14% tax rate. From 6 April 2026 onwards, the rate rises to 18%. If, therefore, you are planning on selling your business or making a gift of qualifying business assets, you might want to manage the impact of this by considering timing the sale before 6 April 2026 to take advantage of the lower rate.
Each spouse or civil partner has their own £1 million lifetime gains limit under BADR so, where both spouses or civil partners have an interest in the business, there may be planning opportunities available to maximise the benefit of BADR.
Inheritance tax (“IHT”)
The 2024 Autumn Budget outlined significant changes to agricultural property relief (“APR”) and business property relief (“BPR”), both of which are valuable IHT reliefs. Currently, the 100% IHT relief for qualifying business and agricultural property is uncapped. From 6 April 2026, however, the first £1 million of combined qualifying agricultural and business property will receive 100% relief and qualifying property over £1 million will only receive 50% relief (meaning such assets are subject to an effective IHT rate of 20%).
Although draft legislation has not yet been published on the changes, the government recently released a consultation on the proposed measures. The consultation proposes that the £1 million cap will refresh every seven years on a rolling basis (in a similar way to the IHT nil-rate band). Where the total combined value of APR/BPR is more than £1 million, the £1 million allowance would be allocated on a chronological basis and would take into account lifetime gifts and lifetime transfers into trust in the previous seven years. The consultation also proposes that any unused allowance is not transferable between spouses and civil partners; and so, if that proposal is taken forward, it will be important to take steps to ensure that both spouses and civil partners fully utilise their £1 million allowance. These details are currently provisional and we await confirmation of the full details following the consultation.
In light of the potentially significant impact of these changes, if you own qualifying business and/or agricultural assets over £1 million, we would recommend that you start considering possible steps over the course of this tax year to alleviate the effects of the changes before they come into force on 6 April 2026.
Navigating the new tax year
With careful planning over the next tax year, you can take proactive steps to mitigate the impact of the major taxation changes which will take effect from 6 April 2026, and, in turn, focus on your long term estate planning objectives.
Wedlake Bell can help you mitigate inheritance tax on your estate, by ensuring you take advantage of all available reliefs and exemptions where applicable. We advise individuals and families/their trustees on passing down assets through generations, making use of exemptions, reliefs from capital taxes and providing tax planning opportunities under your Will.
If you would like to discuss anything covered in this article, please do not hesitate to contact a member of the Private Client team.
This article is for general information only and does not seek to give legal advice or to be an exhaustive statement of the law. Specific advice should always be sought for individual cases.