Focus on: private wealth taxes

Agricultural property relief and business property relief will be reformed from 6 April 2026 with 100% relief for the first £1 million of combined assets and 50% relief thereafter. 

Relief for shares not listed on a recognised stock exchange, such as AIM, has also been halved to 50% from 6 April 2026. From 6 April 2027, unspent pension pots, including death benefits payable from a pension, will be brought into a person's estate for inheritance tax purposes.

The Budget statement also announced that the government will legislate to extend the scope of Agricultural Property Relief, from Inheritance Tax to environmental land management, from 6 April 2025. Relief will be available for land managed under an environmental agreement with, or on behalf of, the UK government, devolved governments, public bodies, local authorities, or approved responsible bodies. However, the benefits of this will be impacted by the overall reduction in scope of APR through the application of a £1 million cap and reduced rate from April 2026. 

These reforms will have major implications for family businesses, rural and landed estates. Those effected by these changes will need to consider how and when they pass on family wealth.

Pensions are to be brought within the inheritance tax regime from April 2027.

Since 2014, pensions could be passed on to beneficiaries upon death without being subject to IHT. However, from April 2027, this will no longer be the case and IHT will apply to any unspent pension pots on death.  

For the first time, clients will have to consider their pension pots directly as part of their inheritance tax planning. This will prompt a careful consideration regarding the tax benefits of paying into their pension (which appear currently to be being left alone) against the taxation on withdrawal and any IHT charged on what they do not withdraw. 

This change may encourage individuals to withdraw their tax-free lump sum, assuming that remains across future budgets, as well as drawing down on that pension as fully as possible during their lifetime. 

From 6 April 2025, the concept of a ‘long term resident’ will be introduced. This will apply to individuals who have been a UK tax resident for at least 10 out of the last 20 tax years.  

Non-UK situated assets will be subject to UK inheritance tax when a person is a long-term resident. Further if a person who has created an ‘excluded property’ offshore trust (the ‘Settlor’) has or does become a long-term resident, the trust will be subject to UK inheritance tax, irrespective of when assets were put into it.

The Budget also marks an end to the concept of ‘domicile’, significantly tightening the non-domicile tax regime.

These measures mark a big change to the current rules and plans of the previous government and follow Labour’s plans to bring offshore trusts and assets into the UK Inheritance tax regime. Existing arrangements and trusts should be reviewed in light of the proposed changes.

Trustees of existing excluded property trusts will need to consider winding up these trusts or retaining them under the new rules. Settlors should also take steps to avoid becoming long term residents, or losing that status once obtained. They will need to be non-UK tax resident for 10 years in order to do so.

From 6 April 2025, all UK residents will be taxed on income and gains on an arising basis.  For individuals who become UK tax resident for the first time, or following a period of 10 years non-resident, they can claim 100% relief on foreign income and gains (FIG) for the first 4 years of tax residency, although certain income sources will not be relieved, including foreign employment income which may covered by the Overseas Workday Relief.

For FIG arising prior to 6 April 2025, the Temporary Repatriation Facility can apply to encourage individuals to remit foreign income and gains into the UK. This will be available for the first 3 tax years at rate of 12% rising to 15% by 2027/28.

The changes to the non-domicile regime could see a number of our international clients, living in the UK considering relocating elsewhere. Clients who are impacted will need to take prompt tax advice to ensure they benefit from the ability to qualify for any transitional provisions.  

If a parent wishes to move out of England and Wales with children, they will need the agreement of the other parent. If they cannot agree, the court will need to be involved to decide what is in the child’s best interests and so action will need to be taken quickly. Decisions will be based on what is best for the children and therefore other reasons than relocating for tax purposes will need to be considered.

Relocation could have inadvertent consequences in terms of any children and also the ability to divorce elsewhere with potentially more onerous divorce rules and the division of assets, as such, careful consideration should be given to the wider implications of making such a move including whether any revision to a nuptial agreement is needed.

From 30 October 2024, all education including private school, boarding fees and vocational training for school terms starting on or after 1 January 2025 will be taxable at the standard rate of 20%. With some private schools trying to shield parents from the full effect of the 20% at least initially, other independent schools have had no option than to pass on the full liability and it is unlikely schools will be able to cushion the burden indefinitely. As such, for some parents this has rendered private school potentially unaffordable, or with a need to reach out to grandparents or other wealth sources to help. 

Both individuals with parental responsibility for a child must be involved in major decisions relating to a child, this includes schooling. If it cannot be agreed, then one parent will need to apply to the court for a specific issue order. If funds are being borrowed from other family members, then it is also important to consider whether formal loan agreements should be prepared.

Stamp Duty Land Tax on purchases of additional residential properties by individuals and companies from three to five percentage points above the standard residential rates of SDLT will have a real impact for some of our HNW clients. This applies to all transactions on or after 31 October 2024 which means time has run out for taking steps to purchase such properties early. In addition, companies purchasing properties worth more than £500,000 will see an increase from 15% to 17% of SDLT.

In addition, from April 2025 there will be changes to the lower bandings for the level of SDLT payable. If you are thinking of moving home, it's sensible to take steps to complete ahead of these changes, as the result is going to be more SDLT to pay for most buyers. This means that only the first £125,000 of the purchase price will be free of SDLT, compared to £250,000 currently and £300,000 for first time buyers, if the house is less than £500,000. There will then be 2% stamp duty on the next £125,000 – which means almost every purchase for existing home owners will be £2,500 more expensive. Thereafter, the existing rates and bandings continue to apply.