Some capital gains tax (CGT) rates were increased from Budget Day and the rate of both Business Asset Disposal Relief (BADR), and Investors’ Relief (IR) will be increased in two stages starting from April 2025. A range of significant changes will also be made to inheritance tax (IHT) which will see IHT extended to death benefits payable from a pension into a deceased’s estate, in addition to changes to both business property relief (BPR) and agricultural property relief (APR). Previously announced changes, including the abolition of the CGT and income tax non-domicile regime from 6 April 2025 which will be replaced with a new residence-based regime, were also confirmed. The territoriality of IHT will also move to a residence-based regime as planned.
CGT rate increases
For disposals made on or after 30 October 2024, the lower rate of CGT increased from 10 percent to 18 percent, whilst the higher rate increased from 20 percent to 24 percent. These new rates align with the residential property CGT rates which remain unchanged.
Carried interest is a performance-related reward received by a small population of fund management executives. From April 2026, carried interest will be taxed fully within the income tax framework, with bespoke rules to reflect its unique characteristics and a 72.5 percent multiplier applied to qualifying carried interest that is brought within charge.
As an interim step, the two CGT rates for carried interest will both increase to 32 percent from 6 April 2025. The Government will also consult on introducing further conditions of access into the regime.
CGT BADR and IR
As a result of the newly increased rates of CGT, BADR and IR will both increase from 10 percent to 14 percent from 6 April 2025 and to 18 percent from 6 April 2026 to allow business owners time to adjust to the changes. The lifetime limit (LL) for BADR will remain at £1 million. In contrast, the LL for IR reduced from £10 million to £1 million for all qualifying disposals made on or after 30 October 2024. Chartered Accountants Ireland has previously questioned the policy need for IR and its high lifetime limit.
The Government has also stated that it is committed to creating a positive environment for entrepreneurship and will work with leading entrepreneurs and venture capital firms on how policy supports that, including the role of existing tax schemes. A commitment was also made to make it easier for start‑ups and scale‑ups to access external sources of financial support. This includes, as already legislated for, extending the Enterprise Investment Scheme and Venture Capital Trust schemes to 2035.
Non-UK domiciled status
As previously announced, the non-UK domiciled regime, and thus the remittance basis of taxation for CGT and income tax, is being abolished from 6 April 2025. The remittance basis will be replaced with a residence-based regime. Individuals who opt-in to the regime will not pay UK tax on foreign income and gains (FIG) for the first four years of tax residence.
Current and past remittance basis users will be able to rebase personally held foreign assets to the assets 5 April 2017 market value on a disposal, subject to certain conditions. Overseas Workday Relief will be retained and reformed, with the relief extended to a four-year period and the need to keep the income offshore removed. The amount claimed annually will be limited to the lower of £300,000 or 30 percent of the employee’s net employment income.
The Temporary Repatriation Facility (TRF) is being extended from two to three years until 5 April 2028, expanding the scope to offshore structures, and simplifying the mixed fund rules to encourage individuals to spend and invest their FIG in the UK. The TRF will enable the individual to designate and remit at a reduced rate of tax any foreign income and gains which arose prior to 6 April 2025. This includes unattributed foreign income and gains held within trust structures
IHT measures and reliefs
IHT thresholds (£325,000 nil rate band, £175,000 residence nil rate band, and the £2 million residence nil rate band taper) will remain frozen at their current levels for a further two years beyond April 2028 until April 2030.
Significant reforms to both APR and BPR were also announced. From April 2026, the first £1 million of combined qualifying agricultural and business assets will be entitled to 100 percent relief from IHT with the rate of relief reduced to 50 percent for amounts in excess of £1 million.
The rate of BPR will also be reduced to 50 percent for shares designated as “not listed” on the markets of a recognised stock exchange, such as AIM. However, from 6 April 2025 the scope of APR will be extended to land managed under an environmental agreement with, or on behalf of, the UK government, devolved governments, public bodies, local authorities, or approved responsible bodies.
As previously announced, the new IHT residence-based regime will commence from 6 April 2025. This includes ending the use of offshore trusts to shelter assets from IHT and scrapping the planned 50 percent tax reduction for foreign income in the first year of the new regime.
From 6 April 2027 unused pension funds and death benefits payable from a pension into a person’s estate will be subject to IHT purposes. In doing so the Government aims to restore the principle that pensions should not be a vehicle for the accumulation of capital sums for the purposes of inheritance.
£52 million is also being invested to digitalise the IHT service from 2027/28 with the aim of providing a modern, easy-to-use system for making returns and paying IHT.
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