Budget Q&A: Readers’ questions answered

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Chancellor Rachel Reeves’ autumn Budget outlined a range of attention-grabbing tax-raising measures, including an increase to stamp duty on second homes, a rise in national insurance payments for employers and a much-anticipated increase to capital gains tax.

The headline measures prompted much discussion from people wanting to know how the Budget would impact their own finances.

Sir Steve Webb, former pensions minister and now partner at LCP, Dawn Register, head of tax dispute resolution at BDO, and Majid Hussain, head of private client at Haysmacintyre, answered readers’ key Budget questions.

Pensions

The chancellor said inheritance tax would apply to “inherited” pensions, but does she simply mean pensions will form part of the taxable estate “full stop”?
Steve Webb: The basic principles of inheritance tax have not changed, so transfers between spouses are not subject to IHT. What has changed is that estates for IHT purposes will now also include “unspent” balances in defined contribution pensions and certain death benefits.

What happens to dependants’ drawdown? Does the value of the inherited fund become taxable even if it remains within the pension? SW: Yes, “unspent” pensions will form part of the estate for inheritance tax purposes from 2027.

Inheritance tax

I own shares in a private company. How will I be affected by Budget changes on inheritance tax business relief?
Dawn Register: Shares in a private company can and often do qualify for IHT business relief in many circumstances. Therefore, gifting them to your family or a trust before April 2026 could qualify for full relief on the lifetime gift. Whereas, if they are transferred on death to anyone other than a spouse only 50 per cent relief would be given on the value in excess of £1mn.

I run a small limited company with only two employees (both directors) and, like most people in my position, pay a salary of £12,570 to both, with other remuneration coming from dividends. Does the Budget change the merits of this approach in any way?
DR: The net cost of taking a salary has increased marginally due to the NIC increase, but the overall effective rate comparison to taking a dividend depends on the profit level and corporate tax rate of the company and what personal tax band you fall into. For companies paying tax at 25 per cent, taking dividends that keep you within the basic rate tax band is cost-efficient. Otherwise, the costs are broadly similar.

Stamp duty

What were the changes to stamp duty?
DR: The existing higher rates of stamp duty on the purchase of an additional residential property in England or Northern Ireland by an individual will increase from 3 per cent to 5 per cent for transactions with an effective date (normally completion) on or after October 31 2024. This will also apply to the purchase of a residential property by a company that is not liable to the single rate of SDLT.

The single rate of SDLT that applies to the purchase of a residential property for more than £500,000 by a company in England or Northern Ireland and which is not intended to be used for certain commercial purposes will increase from 15 per cent to 17 per cent. If contracts are exchanged before October 31 2024 but are completed on or after that date, transitional rules may apply. In addition to generating more SDLT, the changes are intended to discourage the purchase of second homes and buy-to-let properties and encourage the purchase of family homes. Note that the current higher levels of relief for first-time buyers will go back to their old levels from March 31 2025.

Non-doms

Following the removal of “domicile” from the rules in 2025, will it become common for older British-born people to move to a zero-IHT country, such as Australia or Malta?
Majid Hussain: It is clear that individuals, especially non-UK domiciled individuals, will be reviewing their long-term future in the UK. While many overseas jurisdictions offer their own versions of the “non-domicile regime”, individuals need to consider this carefully, as the new rules also provide for an IHT tail of 10 years. This means that even if you leave the UK, you remain within the UK IHT net for 10 years.

Is it correct that from April 2025, for both UK income tax and IHT purposes, a citizen born in Britain who has lived outside UK for 25 years will be in the same UK tax situation as, for example, a French-born citizen who has never lived in UK?
DR: Yes, this is correct. The new rules solely look at tax residency and not domicile status. Make sure you are certain about your current tax residency position so there is no ambiguity.

Aim shares

Are Aim shares and all non-listed holdings outside the scope of the £1mn exemption from April 6 2026? Or will they form part of the £1mn that is protected?
DR: No. Aim shares will only qualify for 50 per cent IHT relief where the owner dies after April 5 2026.

Capital gains tax

What is the effect of the CGT rate change mid-year where capital losses have already been incurred, but capital gains are anticipated before tax year end, against which it is intended those capital losses will be set, thus obtaining relief against those subsequent gains? Is a capital loss incurred prior to the Budget restricted to relief at the previous rate(s) or are all capital losses available for set-off against future gains, regardless of date incurred?
DR: Losses are set against gains in the most beneficial manner possible so they will be set against gains that are taxed at higher rates.

Family businesses

How will illiquid family businesses be able to pay IHT on the value at death? Surely this will decimate family businesses as they will no longer be affordable for the next generation?
DR: Owners looking to pass on a family business will have much to consider, as broadly 50 per cent (or more) of the total value of a large business could be liable to 40 per cent IHT on death. We expect that earlier gifting of shares in the business and tax funding plans on death (including third party buy-ins) may end up being a common part of future estate planning for business owners.