By Moira O’Shaughnessy, Managing Partner, FPC
The upcoming ‘Spring Forecast’, as it has been dubbed, is intended to be the Chancellor’s formal response to a new set of forecasts from the Office for Budget Responsibility (OBR), which are expected to be grim.
Whilst it would be very surprising for Rachel Reeves to back track quite so soon on her pledge not to announce tax rises mid-year, it is anticipated that, in order to remain within her fiscal rules, she will announce significant spending cuts.
Key Areas Under Scrutiny
Meanwhile various rumours are doing the rounds including:
- Income tax rises – this would be a real shock but an extended freeze on tax allowances could be on the cards which has the same effect over time as more taxpayers drift into higher rate tax, both income tax and capital gains tax, and potentially lose their savings allowance on interest.
- Changes to ISA rules – There is growing press speculation about whether the ability to invest £20,000 in cash ISAs will continue. Given the government’s focus on growth, there may be an effort to redirect ISA savings into investment rather than cash holdings. However, major structural changes take time to implement, as financial providers require a transition period to adjust their IT systems. The lead-up to April 2027 for pension reforms suggests that any significant ISA adjustments would also be phased in over time.
Autumn Budget Consultations
The recent pensions consultation has now closed, and we await the government’s final response. It is highly unlikely that we will see any reversal of their decision to include pension funds in the estate for inheritance tax (IHT) purposes though changes to the administration process may be introduced to prevent disruptions to the probate system.
Transfer of Business Property to a Trust
Currently, it is possible to transfer qualifying business shares into a trust, regardless of their value. In most cases, provided those shares meet the conditions of a qualifying trading business, there will be no Inheritance Tax (IHT) on the transfer into the trust, and any capital gains can be held over and deferred under existing reliefs.
However, following the proposed reforms to Business Property Relief (BPR), significant changes will apply to transfers of business assets into trusts:
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New IHT Threshold from April 2026: From 6 April 2026, the maximum value of business property that can qualify for 100% Business Property Relief (BPR) within a trust will be capped at £1 million. Any amount above this threshold will be subject to Inheritance Tax when transferred into the trust.
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Transitional Protection: Shares transferred before the Budget will continue to benefit fully from the existing BPR rules until the trust’s next 10-year anniversary. After that anniversary, the trustees’ £1 million allowance will apply in the same way as for qualifying agricultural and business property settled into trust on or after 6 April 2026.
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Potential Impact on Gifts to Individuals: This consultation could also influence future taxation of direct transfers to individuals. If the donor does not survive for seven years following a transfer, these shares may become subject to IHT, with possible implications on how relief is applied.
These changes emphasise the need for careful estate planning, particularly for business owners considering transferring shares to trusts.
In Summary:
- We are in a period of considerable change with inevitably more to come so the importance of advice is critical.
- This latest consultation will run for 8 weeks between 27 February 2025 and 23 April 2025.
- Anyone looking to pass on shares in their business now needs to pause and take specialist tax advice before taking action.
This article is for informational purposes only and does not constitute financial advice.
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