As the tax year-end approaches, it’s crucial to stay informed about the latest changes announced in the Budget. We’ve put together a summary of the key updates from the Budget and some year-end planning tips that you should keep in mind:
Personal Tax
Changes to tax regime which apply to Furnished Holiday Lets (FHLs)
Abolition and Reform of the Non-Domicile Tax regime
Foreign income and gains (“FIG”) Regime for New Arrivals
Transitional Relief – Temporary Repatriation Facility (TRF) & Rebasing
Changes to inheritance tax (IHT) rules
Changes to tax regime which apply to Furnished Holiday Lets (FHLs)
A number of the tax benefits which apply to FHLs are to be abolished from 6 April 2025, particularly with regards to the availability of capital gains tax reliefs (such as Business Asset Disposal Relief – “BADR”, Holdover and Rollover relief will no longer be available).
In addition, mortgage loan interest relief will be restricted for FHL owners, and capital allowances will no longer be available. Instead, going forward, FHL businesses will be treated the same as long term property lets. Affected individuals may wish to take action prior to these changes taking place, such as an incorporation of the FHL business, or potentially liquidate part or all of their portfolios.
Capital gains tax (CGT) rate
The main CGT rate for all assets is now 24% (other than receipts of carried interest, which remains at 28%).
For 2025/26, the BADR rate will rise to 14% and, in 2026/27, it will become 18%. In addition, the CGT rate for gains which qualify for Investors’ Relief will increase and the rate of tax will rise in line with BADR.
The CGT annual exempt amount remains at £3,000 for individuals and estates and £1,500 for most trusts.
Abolition and Reform of the Non-Domicile Tax regime
From 6 April 2025, those who are resident in the UK but domiciled overseas will no longer be able to benefit from the ‘remittance basis’ of taxation. Previously under the remittance basis rules, affected individuals could elect to not be taxed in the UK on foreign income and gains if they leave their money/assets overseas.
A number of transitional provisions are set to be brought in and individuals who may be affected by these changes should seek advice.
Foreign income and gains (“FIG”) Regime for New Arrivals
UK resident individuals who became UK tax resident in the 2022-23 tax year or later (after 10 consecutive tax years of absence) will qualify for the FIG regime. UK resident individuals who arrived in the UK prior to 2022-23 will not be eligible for the FIG regime. Under the FIG regime, qualifying individuals would only be subject to UK taxation of their UK income and capital gains during the first four years of UK residency.
Transitional Relief – Temporary Repatriation Facility (TRF) & Rebasing
Current and past users of the remittance basis will have access to two transitional reliefs.
Subject to specific conditions applying, affected individuals will be able to rebase foreign assets held on 5 April 2017 to the value at that date for Capital Gains Tax (CGT) purposes.
Additionally, individuals who have claimed the remittance basis can designate and remit previously unremitted FIG that arose prior to the changes at a reduced rate. The TRF will be available for three tax years, with rates set at 12% for the first two years and 15% in the final year.
Inheritance Tax (IHT) Changes
Long-term UK tax residents will now be liable for IHT on their worldwide assets if they have been UK tax residents for 10 or more of the previous 20 years. Transition rules will apply for those who are non-UK resident from 6 April 2025 onward.
Offshore Trust Structures
Those with offshore trust structures should liaise with trustees regarding the impact of these changes, particularly regarding the abolition of the remittance basis and the introduction of the FIG regime and especially when it comes to the timings of any future trust distribution pre or post tax year end.
Consideration will need to be given to the longer term IHT position of the trust and the potential IHT charges which may arise in the future and how best to manage any potential future IHT exposure.
Changes to inheritance tax (IHT) rules
A number of significant changes will be made to the scope of IHT reliefs – agriculture property relief (APR) and business property relief (BPR). This will have an impact on various farming enterprises and a number of family businesses.
APR and BPR can, at present, provide up to 100% tax relief from IHT on the value of qualifying assets. From 6 April 2026, the relief will be watered down, with only the first £1 million of total value of agricultural and business property in an estate qualifying for 100% tax relief. Above that value, the relief will be restricted to 50%.
Shares quoted on certain markets of recognised stock exchanges, such as AIM, have been eligible for 100% BPR once they have been owned for two years (provided the company is a qualifying trading business). From 6 April 2026, this relief will be restricted to 50% relief – these assets will not count towards the £1m tax-free allowance.
From 6 April 2027, unused pension funds and death benefits payable from a pension will now form part of an individual’s estate for IHT purposes and therefore fall within the scope of IHT. Therefore, individuals who planned to pass on their pension pots free of tax may wish to draw down on their pensions/access their tax-free lump sum payments now that the funds will be liable to IHT.
Pre-Year End Planning
With the end of the tax year only a few weeks away, there is still a small window of opportunity to ensure that you maximise any unused tax reliefs and allowances and consider your position in advance of any new changes which are due to take effect in the upcoming future tax years. For example:
- Making use of the dividend allowance £500.
- Utilising your £3,000 annual CGT exemption as it can’t be carried forward.
- Use your ISA allowance, the annual ISA allowance is £20,000 per tax year. This allowance cannot be carried over to a future tax year, so you need to use it or lose it.
- Boost your pensions savings by utilising your pension annual allowance. Your pension annual allowance is the total amount that can be paid in across your pension plans in a tax year before a tax charge could apply. It’s currently £60,000 or 100% of your earnings. If you’ve already used all of your annual allowance for the 2024/25 tax year, you might be able to carry forward unused allowances from the last three tax years. Also, pension contributions can be made by your business/employer so this should be considered as part of any pension planning.
- Looking to the longer term, in light of the changes which were announced to the IHT rules, individuals may wish to revisit any IHT planning which may have been undertaken previously to ensure that they meet your current and future personal, family and business objectives. In addition, individuals who have not previously considered their IHT position, may wish to review the impact these changes could have on their current IHT position and consider the planning options available to mitigate any potential additional IHT exposure that may arise as a result of these changes. Also, make sure that you utilise your IHT allowances, namely:
- £3,000 annual allowance (including any carried forward allowance from last year);
- small gift allowance of £250 per person;
- normal expenditure out of income allowance – enables you to give away an unlimited amount free of IHT subject to you having sufficient surplus income from which to make the gifts.
If you would like to talk about any of the points raised in his article, please do not hesitate to get in contact with your usual CT contact or a member of the personal tax team personaltax@ct.me.
