Chancellor Rachel Reeves’ first Budget has introduced a number of key tax changes. This article focuses solely on changes from a personal taxation perspective, rather than the full range of tax measures announced.
Capital gains tax
Capital gains tax (CGT) is a tax on the profit (gain) when you sell, or dispose of, an asset that has increased in value. CGT can apply to investments that are not held within a tax wrapper, such as a pension or ISA. It doesn’t apply to the family home, but it does apply to second homes/buy-to-let properties.
Labour has increased the higher rate of CGT on standard chargeable gains to 24% (up from 20%), while the basic rate has risen from 10% to 18%. These changes have come into force with immediate effect. The rates for residential property (excluding the family home) will remain unchanged at 18% for basic rate taxpayers, and 24% for higher and additional rate taxpayers.
Pensions and inheritance tax
Pensions are set to fall into the estate for inheritance tax (IHT) purposes, with this change coming into effect from April 2027. Under the old tax rules retirees have often prioritised non-pension assets (eg. ISAs and other investments/savings), to fund their spending needs and keep their IHT liabilities in check. The new tax regime will need to be considered when deciding on your source of retirement income and the tax implications.
Given the timeframes involved, savers with large pension pots have plenty of time to weigh up any potential actions they could consider taking. Any decision should be carefully thought through and discussed in advance with a financial adviser.
Inheritance tax – Thresholds freeze
IHT is charged at 40% on the value of your estate above your available nil-rate band thresholds. Under previous rules, the nil rate band of £325,000 and the main residence nil rate band of £175,000 were frozen until April 2028. This freeze has been extended until April 2030. This means that if property prices and other investments rise in value over the next six years then the IHT liability on your estate could rise too.
Business Property Relief
Business Property Relief is a tax loophole that small business owners and investors can use to reduce IHT liabilities. In some cases IHT can be negated entirely, if qualifying assets have been held for a minimum of two years. However, from April 2026, qualifying assets above £1 million will be taxed at an effective rate of 20%.
Business Relief on qualifying Alternative Investment Market (AIM) shares will be limited to 50% of the portfolio, with the other half of the portfolio taxed at an effective rate of 20% (representing a saving on the standard IHT rate of 40%).Those affected by these future changes may wish to discuss their options with a qualified expert.
These changes to personal taxation place an even greater emphasis on making full use of existing tax breaks and tax-efficient investment solutions. Clear financial planning remains as vital as ever.
Make an appointment with a Lumin expert on 03300 564 446, or via our contact form, to discuss how you can optimise your financial affairs, save on taxes, and be confident you’re making the right decisions in the right order.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
