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12 November 2024
Changes to Business Property Relief (BPR) and Capital Gains Tax (CGT)
As announced in the Budget at the end of October two key changes could have a considerable impact on your longer-term tax planning and plans in relation to the succession/exit of your business. We summarise these and their impact below.
Business Property Relief (BPR)
The Government is proposing to introduce a lifetime limit of £1m in relation to BPR, which could have a significant impact on your inheritance tax (IHT) exposure.
The impact on liquidity within your business and family wealth needs to considered alongside the practical impact that these reforms will bring.
Although we have no further insight into the technicalities of these reforms, nor draft legislation, we can provide a review and set out options for you to consider.
What is the position now?
Broadly speaking, if your company is a qualifying trading company, it is likely that the value of your shares in your business will not be exposed to any IHT charges. BPR relief at 100% is available and therefore no IHT liability will arise. This is the current position up to an including 5 April 2026.
Of course, if your company is holding “excepted assets” such as cash in excess of working capital or you have assets in the company that are used personally then the relief is restricted and so advice should be taken.
What is the position from 6 April 2026?
BPR will only be available on the first £1m of value. Thereafter only 50% of the value is relieved under BPR, meaning that an IHT liability will arise.
Under current rules some clients longer term plans have consisted of passing ownership of businesses on death, therefore not creating a tax charge in their lifetime. However, under these proposed reforms some business owners may wish to rethink their plans. With the changes in CGT, detailed below, consideration needs to be given around the succession/exit planning in someone’s lifetime.
Capital Gains Tax (CGT)
Taking effect on the 30 October, the main rates of CGT increased to 18% for standard rate taxpayers and to 24% for higher and additional rate taxpayers, which now aligns with the main rates of CGT on residential property.
Business asset disposal relief (BADR), previously and more commonly known as entrepreneurs’ relief, remains at 10% for the rest of this tax year but will increase from the 6 April 2025 to 14% and then to 18% from the 6 April 2026.
In relation to the above, this may impact the timing of a potential exit from the business or the proposed method of exiting the business.
How can we help?
It is important to consider the impact of these reforms as soon as possible.
A one size fits all approach will not work for everyone and it is key to speak to an adviser that can undertake bespoke advice which is tailored to your individual circumstances.
If you have any questions about the subject raised in this update or require further details on how these changes could impact you and what planning could be implemented, please email info@lbgroupltd.com or call 01206 867 551, and a member of the team will be pleased to help.