The Budget 2024 – Your Next Steps
By Suzy Harris-Milnes, tax partner at BHP
As the dust settles on the first Budget of the new Labour government and the first to be delivered by a female Chancellor, there are plenty of headlines telling you what it could or does mean for your finances. Therefore, in this article we outline what action you can take today to limit its impact.
Inheritance Tax (IHT)
The changes to IHT reliefs targeted famers and business owners, you can read more about these changes here. But the question on most people’s lips and that our clients have been asking us is, what should we do?
The first thing we’d always advise is a revised calculation of your tax position, this acts as the cornerstone for everything else. Once you have this information you will have various options from gifting to ensure as many £1m allowances are available, to options around transfers to trusts. However, it’s not just your accountant you should speak to, wills will also likely need changing so that the £1m business property relief allowances for spouses is utilised correctly.
Capital Gains Tax
Despite many in our profession – not least a number of my colleagues – wanting an extension to the Business Asset Disposal Relief lifetime allowance, failed to materialise last Wednesday. There’s been plenty said about how this and other Capital Gains Tax increases may deter entrepreneurship and we’d expect the cumulative changes to lead to some business owners to derisk before April.
However, other alternatives may be settling shares into a settlor interested trust or considering an Employee Ownership Trust (EOT). The latter has grown in popularity amongst business owners over recent years and following the Chancellor’s announcement, looks set to remain a great way to pass your business on to employees in a tax efficient way.
Pensions
Linked to the earlier IHT changes is the move, from April 2027 to include pension pots within the scope of a person’s estate. This means pensions left to anyone other than spouse will incur inheritance tax at 40%. Despite this making plenty of headlines it only appears now that people are also clocking that the remaining pot will then also be subject to income tax when drawn.
As these change are subject to consultation, taxpayers won’t be able to take advice or plan until the exact rules are known.
Abolition of the Non-Dom regime
The announcement of the abolition of the non-dom regime has been universally welcomed and it may also offer some taxpayers a get out clause from IHT.
At the moment, those born in the UK are subject to UK IHT on their worldwide estates, regardless of whether they live here or not. Those that were not born here are caught when they have been here for a significant number of years. But, under the new rules only those living here or owning UK property for a set number of years will be subject to IHT. That means if you have been a non-UK resident for 10 years, you could reduce your exposure to UK IHT significantly or wipe it out completely if you don’t own any UK assets.
It’s important to note that the rules on whether you are tax resident in the UK are determined by the statutory residence test. At a basic level this means the more “ties” you have to the UK, the less days you can be here before you retain or assume UK tax residence. So, for those that can live part here and part somewhere else, staying here for less than the number of days they are allowed to before being UK resident, may work well. It could certainly be favourable for those that already spend significant time in other countries.
The Takeaway
With all of the changes brought about by last week’s Budget, what is my advice for now? Ask your tax adviser or accountant to review your position now to see what the changes will mean for you and put a plan in place to improve your position.
You may be able to improve your position by ensuring that as many £1m allowances are available; both for capital gains tax and inheritance tax which may involve some form of gifting. It’s important however to be aware of the anti-forestalling measures that will already potentially catch you if make a gift now and die after 6 April 2026 but within 7 years of the gift, as in that case you’ll already be caught by the new £1m limit.
Looking further ahead, once the consultation period around pensions is over, once again seek updated advice on options around your pension and make sure to consider this “in the round” with the rest of your tax planning. It’s important that you take financial advice from a regulated individual for this.
If you are looking for clear advice on what the latest Budget means for you, get in touch with myself or colleagues at info@bhp.co.uk who are passionate about helping you understand you position and work to support your ambition and help your business and finances to thrive.
