Protect your legacy: How tax reforms could reshape succession and estate planning

Additionally, the main rate of Capital Gains Tax (CGT”) has increased to 18% and 24% for most assets, including shares, where the rate was 20% until 30 October 2024. 

Furthermore, the Chancellor’s decision to include unused pension funds and death benefits within an individual’s estate from April 2027 will further impact a HNWIs long term planning.

The full effects of these changes on succession and estate planning are yet to be seen, however, there are some practical steps that HNWIs could consider ahead of time to mitigate the impact of the reforms, alongside taking advantage of any tax planning opportunities available to them.

From April 2026 the rate of BPR will remain at 100% but only up to a maximum allowance of £1m per individual. Additionally, this allowance will be shared with any assets qualifying for APR. Once the combined value of business and agricultural property assets exceeds the £1m allowance, the rate of relief will be reduced to 50% giving an effective IHT rate of 20% on these assets. 

Unlike the Nil Rate Band and Residence Nil Rate Band, any unused BPR or APR allowance cannot be inherited by a surviving spouse on first death. 

This means that where assets qualifying for BPR pass to a surviving spouse on first death, the estate will only benefit from 100% BPR on up to £1m of value on second death.  In these circumstances, where total qualifying BPR assets across a joint estate exceed £1m, the surplus will then be given 50% relief, on the second death. Families will need to plan well to ensure that the £1m per person allowance is not wasted.

As the IHT BPR and APR changes are not due to take effect until April 2026 there may be an opportunity to place business and agricultural assets into a trust without a tax cost before the changes take effect. Beyond April 2026, transferring substantial assets to a trust is likely to crystallise an IHT cost of up to 20%. 

CGT and Business Asset Disposal Relief

Disposals of most assets made on or after the 30 October 2024 will be subject to the increased CGT rates of 18% and 24% respectively. 

There were also changes to Business Asset Disposal Relief (BADR), where historically it was possible for qualifying gains to be taxed at just 10% up to a lifetime limit of £1m.  Whilst the lifetime allowance for BADR has remained unchanged, the applicable rate of CGT has increased. 

The planned increase over the coming years provides an opportunity for business owners to bring forward the decision to sell or liquidate their companies to benefit from the lower rates of CGT. 

Disposal in the short term may not be a viable option for many business owners, however. 

In either scenario, it may be prudent for shareholders to consider pre-disposal tax planning to both optimise the overall amount of net funds retained, along with reorganising the structure of their business in line with their desired succession and estate planning.

What does this mean for me, in terms of succession and estate planning?

The Autumn Budget has changed the landscape for HNWIs from both an IHT and CGT perspective. 

Furthermore, previous pension planning arrangements that focused on removing funds from an individual’s estate for IHT purposes will also need to be reviewed. 

Overall, HNWIs and business owners will no doubt have to reconsider their business and investment activities going forward, in line with their succession and estate planning to navigate the changing tax landscape over the coming years.