As the new UK government gears up to unveil its first budget on 30th October, both individuals and businesses are bracing for the potential changes that could affect their financial planning. With economic uncertainty and the need to balance public finances, the forthcoming budget is anticipated to introduce a range of tax-related measures.
Here’s a look at what could be on the horizon and how these changes might impact you, especially in relation to Capital Gains Tax, Domicile and Inheritance Tax.
- Capital Gains Tax (CGT)
Changes to Capital Gains Tax (CGT) and Inheritance Tax (IHT) have been a topic of discussion for several budgets, and this year could be no different. For the 2024/25 tax year, CGT is charged at the rate of either 10% or 18% for basic rate taxpayers. For higher or additional rate taxpayers, the rate is either 20% or 24%.
There might be adjustments to the CGT rates themselves. The government may also consider measures to simplify the rules surrounding CGT to address concerns about fairness and efficiency and one option being suggested is for CGT to be levied at the individual’s highest rate of Income Tax i.e. 40% or 45%.
Such a change in the applicable rate of tax could be implemented either from the start of the new Tax Year starting 6th April 2025 or perhaps immediately from Budget Day.
CGT is currently not levied when someone passes away, but IHT @ 40% is charged on the value of the estate after deducting exempt thresholds and reliefs. It has been suggested that CGT could also become payable on any increase in value from date of acquisition in addition to IHT on its value at date of death.
To demonstrate how this could impact the “tax take” on death let us assume that a property investment (it could even possibly include the family home) cost £200,000 many years ago and is now worth £500,000. CGT, even at the current rate of tax of 24%, is levied on the gain resulting in additional tax of £72,000. Add this to the 40% payable on the £500,000 value results in an overall tax liability of £272,000 i.e. an overall tax rate of 54%.
- Inheritance Tax (IHT)
Inheritance Tax: With the ongoing debate about wealth inequality, there could be proposals to reform Inheritance Tax. Changes might include adjustments to thresholds or rates, or reliefs aimed at supporting family businesses and farms. - Domicile
The subject of Domicile is worthy of an article in its own right especially as we are already aware the UK Government is planning an historic change to the definition of Domicile as from 6th April 2025.
In short, we understand that people coming to the UK and spending 10 years there will be defined as UK Domiciled and subject to IHT on their worldwide assets. Similarly, they will remain UK Domiciled for a further 10 years after they have left the UK.
What is particularly interesting is whether the same interpretation of the proposed legislation will also apply to British expats who have left the UK more than 10 years ago.
Conclusion
The forthcoming UK Budget is set to be a significant event, with potential changes affecting a broad range of tax areas. Whether you’re an individual taxpayer, a business owner, or a financial professional, staying informed about these developments will be crucial for effective financial planning and compliance.
As always, it’s advisable to consult with a tax advisor or financial expert to understand how specific changes will impact your personal or business finances. The government’s proposals will ultimately shape the economic landscape for the coming years, and being prepared for these adjustments will help you navigate the financial challenges ahead.
For further information or advice, please consult with a qualified Estate Planner at Maplebrook Services Ltd. Contact us at +357 26600780 or email [email protected]. Join us for our next Free Life Admin Clinic on Wednesday 30th October 2024, from 10:30 AM – 3:00 PM.
