Reflections on the October 2024 budget
By Michael Brooke – Partner
The landscape has definitely changed over the past few weeks following the first budget of the new Government but how should this affect planning?
The main headlines around family businesses are:
- Business Property Relief (BPR) and Agricultural Property Relief (APR) is reduced from 100% to 50% after April 2026 for qualifying assets over £1m.
- Capital Gains Tax on disposals from budget day increases from 10% to 14% for those disposals qualifying for Business Asset Disposal Relief (BADR) on the first £1m of gains (restricted by previous gains) and from 20% to 24% for other gains.
Some important reliefs remain intact though:
- Potentially exempt transfers (PETs) are unchanged at 7 years
- The capital gains uplift in base cost is also unchanged
Planning for the future
Each situation is likely to be different but there are some general rules that suggest themselves:
- Each estate with a business can leave £3m to the next generation. This will require careful will drafting and ensuring that assets are in the right place. It is generally not a good idea to leave everything to the surviving spouse with joint estates over £2m and BPR/APR are not likely to be transferrable to the surviving spouse so it may become important to use it.
- Lifetime gifts of shares is likely to play an important part in planning providing the donor is likely to survive 7 years. This does trigger a CGT liability but this can be held over until sold which may be never. In the event that the donor does not survive 7 years then BPR/APR may apply and one is in no worse position than if one had not made the gift. There are certainly variations to this theme involving trusts and Family Investment Companies which will make it easier for the donor to retain control in their lifetime (and afterwards if so wished).
- Leaving the business by your will is the other option and this will cost up to 20% IHT as above. This may be tolerable to some and can be funded from the Company (if a Limited Company) through a purchase of own shares which is unlikely to attract CGT due to the uplift in the base cost on death. It may also be attractive where the successors to the business may not plan to keep it for too long and clearly the uplift in base cost could be helpful. One can understand the frustration of farmers though, as they tend to be multi-generational and asset rich but cash poor.
- For businesses with a long time horizon it may make sense to freeze the value today and issue new shares for the future growth to the next generations. Care must be taken but this can be free of tax and the current value may have reduced significantly in, say, 30 years’ time after 30 years of inflation! It is maybe difficult to imagine a business that will still be run by the family in 30 years time though. Farmers certainly, hoteliers maybe and possibly funeral directors and accountants! Death and taxes remain a certainty.
Conclusion
As in all matters planning, start early and be prepared for the rules to change again in the future….
Each situation is unique and speaking to an experienced professional is the best place to start from and the best persons to speak with are me in Abingdon, Philip Kinzett-Evans and Chris Davies in Newbury and Rebecca Horne-Smith for Hungerford and Swindon. Do get in touch.
