The budget has been very well covered in the press, and much of it does not directly concern Plantagenet’s clients, so I’ll just just make some general observations on the capital tax changes.
Firstly, what didn’t happen. We didn’t have a wealth tax, thank goodness. That really would have been disastrous. There was no attempt, though, to make sense of the ludicrous complex mess which is now Stamp Duty Land Tax or bring the cash allowances in the Inheritance Tax legislation up to date to sensible figures. So much for common sense, then.
As far as Capital Gains Tax is concerned, it is a relief that the rates on residential real property were not changed. Rates on other assets are now the same, which is a considerable increase, but not unexpected. At least there was no attempt to harmonise Capital Gains Tax rates with Income Tax rates (that’s been tried before, and adjusting for inflation gets complicated). Those people who disposed of assets ahead of the budget in anticipation of the rise will be congratulating themselves, and so will the Chancellor when the figures come in at the end of the year but, of course, sale of a capital asset tends to be a one-off event. Figures for the 2025-6 year, by contrast will “disappoint” the government and they will have discovered a new “black hole” in their receipts as the disposals brought forward will not be repeated. What will they do then?
The Inheritance Tax changes are more interesting. We have speculated for some years on whether Agricultural Property Relief might be abolished and the definition of “Business Property” expanded to clearly cover working farms but exclude hobby farms. That has not happened. Another approach might be graduated rates of Inheritance Tax on farms so that smaller farms are not penalised but large estates are targeted. Not that, either. What we have is a restriction of both Agricultural Property Relief and Business Property Relief to 50% above a £1m threshold. This has been described as a “20% rate” since the full rate is 40%, but it is not quite the same thing. Nor are there many small farms worth as little as £1m (except, perhaps hobby farms). With agricutural land averaging nearly £10,000 an acre in England and Wales and 100 acres being typically unviable, very few farms will escape the charge altogether. It seems a badly though-out reform. The change is not due to be effective until April 2025 and you can be sure there will be intensive lobbying before then to raise the threshold.
One aspect which has been little discussed is agricultural and business assets held in trusts. Typically, these are Relevant Property Trusts subject to a 10 year charge based on a modest percentage of the excess assets over the nil rate band of £325,000. For many years, for different reasons, family farms and family businesses have been placed in such trusts and in many cases the next 10-year anniversary may come up within the next couple of years. Typically, when these assets had the benefit of full relief, it was not an issue. Now, however, there are many business and farms, some large, which will have to find the money to pay that 10 year charge when they do not have sufficient income to pay it. Expect a good number of these trusts to be unwould before the new legislation is effective which, perhaps, is what the government had in mind.
The last point is crucial for many clients. Deaths and major disposals may not be imminent: so should they react to the changes now, and make major changes to their estate planning, or should they “sit tight” and hope for a change of government at the next election (and good health in the meantime)? If land prices fall as a result of forced sales, is it a good opportunity to buy in, in the hope that the next government will go back to 100% relief? It would be a brave call.
