How Does the Budget Affect Inheritance Tax and CGT?

The highly anticipated Labour budget was announced yesterday introducing several changes, one of the most talked about aspects being the parts that will affect the taxes that are applied to the estates of a person who has died. 

Changes to Capital Gains Tax

Capital Gains Tax (CGT) applies when assets such as a second property, company shares, or artwork are sold, gifted, or otherwise disposed of. If these assets produce a profit or “gain,” CGT is levied on that amount, with rates varying according to your taxable income and the type of asset disposed of, providing the gain exceeds £3,000 in a given tax year.

Rachel Reeves outlined an increase in CGT rates: the lower rate will rise from 10% to 18%, and the higher rate will increase from 18% to 24%. CGT on residential property sales will also rise to 24%.

For estates, this means that if an asset within an estate gains value between the date of death and the date it is transferred to a beneficiary, an additional 8% tax may apply if the beneficiary is a lower-rate taxpayer and an extra 6% if a higher-rate taxpayer.

Changes to Inheritance Tax

The freeze on inheritance tax allowances has been extended for two more years, until 2030. This freeze preserves each individual’s tax-free allowance of £325,000 for the first portion of their estate, increasing to £500,000 if they leave their residential property to direct descendants and up to £1 million for a surviving spouse or civil partner.

When adjusted for inflation, this extension effectively lowers the real value of the tax-free inheritance amount, which could result in a decrease of tax-free assets which can be passed on to beneficiaries over time.

Do you need advice about taxes?

At Samuels, we can assist with tax planning and provide guidance on estate administration to make the best use of available reliefs. Please contact our specialist team if you require assistance.