As we enter a new tax year, it’s important to review your position and consider the impact that the changes, which take effect from the new tax year, will have on your personal, business and financial affairs. In this article we set out some of the main changes which have an impact on business owners and the key issues that you should be aware of.
Remuneration planning
With Employers’ National Insurance Contributions (NICs) rising to 15% from 6 April 2025, this further increases the diverge in tax on employment income when compared to tax on dividend income. Owner-managed businesses should review and consider the balance in terms of the remuneration that they draw from the business whether it be in the form of a salary, dividend payments, pension contributions and/or a loan to make sure that they are optimising the tax position from a personal and business tax perspective.
Exit planning
From 6 April 2025, the CGT rate for gains which qualify for Business Asset Disposal Relief (BADR) increased from 10% to 14% and then increasing again from 6 April 2027 to 18%. This compares to the main CGT rate of 24%. Therefore, for those looking to sell their business, they should be mindful of these rate changes and the impact that this could have on their net cash position when looking to realise value from a sale.
If planning to sell or exit the business, consideration may wish to be given to the use of an Employee Ownership Trust (EOTs). This can be an attractive option for business owners where there is an existing management team already in place who are looking to take over the business going forward. Where certain conditions are met then a 0% CGT could apply.
Inheritance Tax (IHT) planning
A number of significant changes will be made to the scope of valuable IHT reliefs, namely agricultural property relief (APR) and business property relief (BPR) and IHT relief on funds which have been accumulated in a pension.
Business owners should review their overall IHT exposure, across both their personal and business assets, following these significant changes.
Post 6 April 2027, APR and BPR will be restricted, with 100% relief given on up to a maximum value of £1 million, thereafter only 50% relief will be given on the value in excess of £1million. These changes will apply on death as well as to lifetime chargeable transfers.
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.
Succession planning
Given the changes to the availability of APR and BPR, consideration should be given to accelerating succession planning and handing over of the reigns to the next generation of the family. Those affected should be speaking with their family and advisers to consider the impact that these changes could have on structures and plans which have been put into place.
If you have any questions, or need any support, please get in touch with your usual CT contact or our personal tax team at personaltax@ct.me.
