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How will the Autumn Budget affect business owners exit and retirement plans?

October 25, 2024
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BSc CTA, Tax Partner
East London

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How will the Autumn Budget affect business owners exit and retirement plans?


With the new Labour Government’s first Budget due on 30 October, we look at the changes that could be announced that may affect business owners and their exit and retirement plans for the future.

Capital Gains Tax

There is no doubt that CGT is on the radar of the new government as an option to raise more tax revenue in future.

The market is already seeing investors selling assets such as shares and property amid fears that the new government may increase CGT. Although investments held in pensions and ISA tax wrappers will not be affected by changes in CGT.

Any substantive changes will be difficult given the government’s short term in power. To implement a complete re-vamp of the regime will take a lot of work. However, it would be straightforward to re-implement the 28% rate of CGT (or higher) on residential property sales.

Business Asset Disposal Relief (BADR) which reduces the effective CGT rate to 10% (on the first £1m of gain) could also be a target in the Budget. The scope of changes and the dilution of benefits from when it was entrepreneur’s relief means that it may be targeted again by abolishing the relief.

There is little pre-emptive action you can take around CGT, apart from if the sale of an asset is already going ahead, consider completing the sale prior to the Budget on 30 October.

 

Inheritance tax

Inheritance Tax is widely seen as an easy target and additional tax on those leaving behind wealth would be easier to sell to the public than potentially creating a separate wealth tax that has also been muted.

There is potential for a graduated band starting at 25% and rising to a highest rate on estates over £2m could be introduced.

The government may also target business relief and agricultural relief. This may just be tinkering around the edges by tightening business relief and agricultural relief qualification criteria such as the two year holding period requirement, bands of reliefs rising over the years before full relief is awarded or limiting the relief for larger esters.

However, many owners fear it may be a more significant announcement around business relief being abolished, meaning IHT would be payable on passing over trading company shares.

Changes could be made to agricultural relief, targeting owners of farms and agricultural estates which are operated under a shared farming agreement or tenant farmer, rather than being worked by the owners themselves.

With any significant changes there should be a consultation exercise beforehand that will give us all some further clarity before the changes happen.

Pre-emptive action around IHT should only be taken if you were already considering it as part of your regular financial planning. For example, if you were already considering gifting assets then consider making the gifts prior to 30 October 2024.

 

Pensions

Rachel Reeves has already launched a pension review that focuses on scaling up workplace pensions.

There are rumours that the government may look to apply employer NI to employer contributions on pensions, but this is likely to reduce the amounts being saved into pensions. However, NI could be added to employer contributions and the reduced via tax relief.

There has been much speculation around potential changes to pension tax relief. This could include scrapping tax relief for higher earners and introducing a flat rate of 30% tax relief or capping the relief at 20% for others.

They may also look at changing the 25% tax free lump sum that retirees can withdraw from their pension at the age of 55 upwards (set to rise to age 57 in 2028). There is currently a maximum limit of £268,275 that can be taken as a tax free lump sum.

Pensions savings currently fall outside a person’s estate for Inheritance Tax so are exempt from IHT and this is another area that the government may look to change.

There is no doubt that these types of changes would prove unpopular, and the government needs to avoid destroying the incentive for people to save into a pension.

For higher earners, it may be worth considering topping up pension contributions ahead of any possible changes.

 

Employee Ownership Trusts

Employee Ownership Trusts (EOTs) have been an increasingly popular tool for clients managing an exit in a highly tax efficient fashion whilst creating much wider share participation amongst their employees.

EOT relief may be adjusted in the Budget. For example a limit could be placed on the amount of exempt gains per individual. Alternatively the 0% rate could be replaced with a higher rate that was still lower compared with other sales.

It’s unlikely the government will change the basic premise of these arrangements but may act to prevent situations whereby owners can engineer two sale events (firstly on the exit to the employees and secondly on a subsequent share sale event).

 

Summary

There is much speculation around what may or may not be announced in the Autumn Budget 2024 by the new Labour Government. So far, there have been very few leaks. It would be easy to decide to pre-empt potential announcements now, however this could be a dangerous strategy.

Our advice is that if you were already making changes or planning to undertake some changes in the above area then consider completing these before 30th October 2024. However, do not allow speculation to change your overall financial plans.

We will be digesting the key announcements on the day of the Budget and will produce other more detailed updates. We will also be running a 2025 tax planning seminar after the Budget to give business owners clear guidance and tax planning strategies for the forthcoming tax year, based on the Budget announcements.

 

Related articles

What can businesses expect from the Autumn Budget 2024 – VAT on school fees

What can businesses expect from the Autumn Budget 2024 – Capital Gains Tax

 

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