Budget changes to Capital Gains Tax

Capital Gains Tax

In the Budget on 6 March 2024, the Chancellor has announced that the higher rate of Capital Gains Tax (‘CGT’) payable on the disposal of property will be reduced from 28% to 24% from April 2024.

There is to be no increase in the CGT annual allowance, which is still set to reduce from £6,000 to £3,000 per individual from 6 April 2024.

The lower rate payable on the extent that the gain when added to your income in the tax year is below £50,000 remains at 18%. The CGT rates on gains from sale or gifts of other assets stays at 10 or 20%.

Inheritance Tax

The Chancellor announced no major changes in Inheritance Tax (‘IHT’) in the Budget.

Assets inherited by a person’s surviving spouse or civil partner remain free of Inheritance Tax.

The individual tax-free allowance on death remains at £325,000 (the ‘Nil Rate Band’) with a maximum additional £175,000 exemption (‘Residence Nil Rate Band’) available if the deceased leaves a property or interest in a property in which they have resided directly to children or grandchildren. This provides a total Inheritance Tax allowance of up to £500,000.

IHT is still payable at a flat rate of 40% on the value of assets that exceed the available IHT allowances. This can be reduced to 36% where a minimum value of the estate is left to qualifying charities.

No changes were made to the rules allowing the Residence Nil Rate Band to be claimed if at a later date you have to go into care or move in with your children.

The rules remain that if a person’s assets on death exceed £2 million then the Residence Nil Rate Band that can be claimed is reduced. No such exemption can be claimed if the person’s assets exceed £2.5 million.

If the estate passes to a surviving spouse or civil partner then, on the survivor’s death, their estate will benefit from part, or all, of the Inheritance Tax allowances not used on first death. For example, if the whole estate passes to the surviving spouse, neither spouse made any gifts in the seven years before their death (in excess of the Annual Exemption) and they owned a property worth over £350,000 which passes to their children directly on the second death, then no Inheritance Tax will be paid on the surviving spouse’s estate up to £1 million.

The Annual Exemption of £3,000 and Small Gifts Exemption of £250 remains in place, as do the special exemptions available on gifts to children and grandchildren on their marriage.

The ‘7 Year Rule’, exempting from IHT gifts made more than 7 years before death remains unchanged and a very important useful tool in estate planning.

Caution should be exercised, and proper advice sought, before making any lifetime gifts. This is to ensure that you are aware of any tax implications and anti-avoidance rules which might cause a gift to fail and the value of that asset at the date of your death to remain in your estate for IHT purposes.