Budget 2024 – Changes to Capital Gains, Tax and Pensions

As anticipated, Inheritance Tax (IHT) and its potential impact on commercial agricultural units have dominated the conversation since Rachel Reeves presented the 2024 Budget. However, there are other significant changes lurking in the background, notably with Pensions and Capital Gains Tax (CGT), which could have significant ramifications, particularly for those engaged in succession planning.

Overall, some of the more alarming predictions around CGT were avoided:

• CGT rates will not be aligned with Income Tax.
• Essential planning tools such as CGT holdover and rollover reliefs remain intact.
• The IHT seven-year gift rule will not be extended.
• There is no alteration to the CGT uplift on death (which, had it changed, would have created considerable administrative headaches).

Moreover, Business Asset Disposal Relief (BADR) continues, albeit with revised rates. The 10% relief ends in April 2025, after which it will rise to 14% and eventually to 18% from the 6^th of April 2026, aligning with the standard CGT rate. It’s worth noting that this relief only applies to the first £1m of gains, meaning for many, it may not be the most substantial tax shift.

The more significant change is coming for non-residential properties. Effective immediately from the Budget Day, the tax rates for these properties will match the rates for residential properties —18% and 24%. Given the volume of transactions taking place in the lead-up to the Budget, new rules will be put in place. These will affect both regular sales and BADR sales if the sale isn’t completed within six months of agreeing to it.

To put this into perspective, the potential tax increase for assets subject to BADR could be as high as £40,000 in the 2025/6 tax year and £80,000 in 2026/7. For larger gains, such as £10 million, the tax burden (excluding any BADR) could increase by £400,000.

However, it is the pension changes that might have a more profound impact, particularly on family businesses. Prior to the Budget, undrawn pension funds transferred upon death were generally outside the scope of IHT, with many farms utilising Safety Schemes in Procurement (SSIPs)s for agricultural property purchases in line with business needs, believing these funds were exempt. However, from April 2027, the situation will change. While transfers between spouses will continue to follow existing IHT exemptions, pensions themselves will now be subject to IHT. What’s more, there is uncertainty around whether agricultural property within pension funds will qualify for Agricultural Property Relief (APR), although it seems unlikely.

This shift could mean that executors might face an additional challenge, needing to cover IHT liabilities by withdrawing funds from the pension pot, potentially pushing the marginal tax rate up to 66%. The broader consequence is that a far larger number of estates will be liable for IHT—rising from 4% to 12%, according to recent reports. It underscores the urgent need for businesses to update succession plans to address pensions, CGT, and IHT.

One thing is clear, swift action will be required for businesses—especially family farms. Some may be tempted to delay or hope for a swift change in government or policy, but while only 34% of the electorate voted Labour in July, there is no guarantee that any incoming government would reverse these changes. With the average male farmer now aged 59, operating on a 200-acre farm, many will soon be facing the IHT threshold, with life expectancy further shortened by the stresses of farming.

The IHT changes, stated to take effect over the next few years, will undoubtedly present significant challenges. For example, agricultural and business property has been largely exempted from IHT since 1992, but starting in April 2026, the 100% relief will apply only to the first £1 million of combined agricultural or business assets. Anything above this will now be subject to a 50% relief, creating an effective 20% charge. For instance, a 400-acre farm, previously exempt, might now face an IHT bill of around £800,000. While there is an instalment option to spread this liability over 10 years, this still represents a considerable financial burden that many businesses simply will not be able to bear.

Interestingly, these reliefs were often criticised as “loopholes” in the run-up to the Budget—yet they were intentionally designed to shield family farms from exactly these pressures. In a curious twist, the retired industrialist or lottery winner purchasing a “lifestyle” farm will be largely unaffected, while the working farm faces a potentially crushing burden.

Ultimately, businesses will need to adapt their succession plans to the new tax reality. The absence of sweeping changes to CGT and pension rules is a relief, but it’s clear that farms will need to return to succession strategies used decades ago. This might mean equalising estates, utilising the 100% IHT bands, and revisiting lifetime gifts and trust structures that can optimise tax planning.

At the heart of this process is the need for action—proactive, informed decisions that prioritise both the longevity of the business and the people at its core. Perhaps, most importantly, clients need to realise that they are not immortal and may take some small comfort from Rachel Reeves’ comment the morning after the Budget 

I had to make big choices. I don’t want to repeat a Budget like this ever again.