20.11.24

Understanding the Impact of the Autumn 2024 Budget on Trusts

The Autumn 2024 budget delivered by Chancellor Rachel Reeves introduces several significant changes to the tax landscape, particularly regarding Capital Gains Tax (CGT), Inheritance Tax (IHT), Agricultural Property Relief (APR), and Business Property Relief (BPR). These changes have important implications for Trusts and their beneficiaries, necessitating careful consideration.

Capital Gains Tax (CGT) Changes

A notable change in the budget is the increase in CGT rates, which have risen from 18% to 24% for the disposal/transfer of residential property and 10% to 20% for other assets. This impacts any disposals made on or after 30 October 2024. This increase applies to gains realised by Trusts as well, significantly impacting their tax liabilities. Alongside this rate hike there is also an increase in the rate of CGT for Business Asset Disposal Relief. This is increasing to 14% for disposals made on or after 6 April 2025 and from 14% to 18% for disposals made on or after 6 April 2025.

Trustees must remain vigilant in managing Trust assets. The combination of higher rates of CGT and a lower exemption increases potential tax burdens on disposals. This may compel Trustees to reconsider their investment strategies, potentially delaying asset sales or restructuring Trusts to mitigate CGT exposure. Proactive estate planning is essential to navigate these changes effectively.

Inheritance Tax (IHT) Changes

While the budget maintains existing IHT thresholds, it introduces critical changes regarding APR and BPR. Notably, there are now restrictions on the value of assets that can qualify for these reliefs. For APR the maximum value of agricultural property eligible for relief has been capped. Similarly, BPR has seen a restriction in the qualifying value of business assets. Only a portion of certain business properties may now qualify for relief. After the first £1 million of combined APR and BPR qualifying assets the relief applied to qualifying assets will fall from 100% to 50%. Trustees need to reassess their asset holdings to ensure compliance with these new limits.

AIM Shares and Reduced Relief

Additionally, the budget has introduced reduced relief for shares listed on the Alternative Investment Market (AIM). While previously, these shares qualified for full BPR, the new measures have limited the relief available. Trusts that invest in AIM-listed companies will be affected. This change may lead Trustees to rethink their investment strategies, weighing the potential tax implications against the benefits of holding such assets.

Alterations made to Unused Pension Funds and Death Benefits

The budget also addresses the treatment of unused pension funds and death benefits. These will be brought into the person’s Estate for IHT purposes from 6 April 2027. The pension administrators will become liable for reporting and settling the IHT due on the amounts. 

Removal of the Domicile Rule

One of the most significant changes is the removal of the domicile rule, which has historically impacted the IHT treatment of non-domiciled individuals. Now, all UK residents, regardless of domicile status, are subject to IHT on their worldwide assets.

For Trusts established by non-domiciled individuals, this change necessitates a thorough reassessment of estate planning strategies. Trustees must consider the implications for asset distribution and tax liabilities. The scope of IHT now encompasses previously exempt assets.

Our view of the changes

The changes introduced in the Autumn 2024 budget signal a substantial shift in the taxation approach for Trusts. With CGT rates increased, IHT regulations tightened, the value of APR and BPR assets restricted, and reduced relief for AIM shares, Trustees and Beneficiaries must be proactive in reassessing their strategies as the changes affect both the value of estates and the strategies used to pass wealth on to Beneficiaries. Families with agricultural holdings or small businesses that rely on APR and BPR for tax relief will likely need to reassess their structures in light of the reforms. Similarly, high-net-worth individuals and Trustees responsible for managing complex estates or family businesses will need to evaluate the impact of these tax changes on their long-term financial planning and succession strategies.

How we can help

At Renaissance Trust, we are dedicated to helping you navigate these changes and ensure your Trust management remains robust and compliant. For personalised advice, please reach out to our team who would be delighted to arrange a consultation based on your unique circumstances.