"We will increase the lower rate of CGT from 10-18% and the higher rate from 20-24%. While maintaining the rates of CGT on residential property at 18 and 24% too.”
This hike in CGT came into effect from 30th October 2024, as opposed to in the next financial year, and the CGT-free allowance remains at £3000, so there isn’t much room to play with before it kicks in. Though some will take solace in the fact the rates on residential property remain the same, it paints a potentially bleak picture for those with assets that qualify for CGT outside of property.
While it is less of a hike than the 40% some were touting, what this could mean for high earners and investors, especially those with substantial investments in a number of assets, is that they will potentially face a heavier tax burden under the new CGT rates, reducing the net gains for high-value asset sales. These include the majority of personal possessions worth £6,000 or more, second homes, primary homes if they are let out, business assets and any shares not included in an ISA.
In addition, the government will increase Capital Gains Tax rates on carried interest to 32% from April 2025, meaning that the tax rate paid by private equity bosses on their gains will rise from 28p to 32p.
“The previous government froze IHT thresholds until 2028, I will extend it to 2030. This means that the first £325,000 of any estate can be inherited tax free. Rising to £500,000 if the estate includes a residence passed to direct descendants, and £1m when tax-free allowance is passed to a surviving spouse or civil partner.”
The extended freeze means that, as asset values appreciate—especially for properties, investments, and other estate holdings—more of an estate’s value will exceed the nil-rate threshold, subjecting it to the 40% inheritance tax rate. HNWIs are potentially more likely to face a growing tax bill on estates unless they take measures to mitigate their liability.
Rachael Griffin, tax and financial planning expert at Quilter, said: “The decision to continue the freeze on the IHT nil rate band at £325,000 will pull many more estates, which many would consider relatively modest, into the inheritance tax net.”
“We will close the loophole created by the previous government, by bringing inherited pensions into inheritance tax from April 2027.”
The news on inherited pensions forming part of inheritance tax from April 2027 will likely not be welcomed by many.
Mike Ambery, retirement savings director at Standard Life, part of Phoenix Group, said: “Now, the value of pension pots will be added to the total value of other assets and if over the IHT threshold of £325,000, aside from other exemptions, will be taxed in the same way. This represents a fundamental shift to how wealthier individuals think about accessing their money in retirement.”
He added: "At present it makes more sense to access ISAs and other forms of savings before touching pensions. In time we’re likely to see more pensions, accessed earlier to prevent them from becoming part of people’s IHT bill at a later date."
This development will potentially lead many to reconsider retirement and estate planning strategies in order to avoid being taxed on inherited pensions.
“We will be increasing stamp duty land tax surcharge for second homes known as the higher rate for additional dwellings to 5%, from 31st October 2024.”
Higher stamp duty makes purchasing second homes, holiday homes, and buy-to-let properties more expensive. This reduces the potential yield on such investments since the initial outlay is now higher. The change may lead investors to reconsider long-term property strategies, as the traditional “buy and hold” model for second homes is now less profitable.
With residential property investments becoming costlier, individuals will potentially be looking to diversify into alternative asset classes, pivoting toward assets like art, cask whisky or other commodities, which don’t face similar taxes on acquisition.
In terms of CGT-free assets, cask whisky falls into this category. What this means, is that the profits you make from the proceeds of a sale of a cask are not subject to Capital Gains Tax.
The reason for this is that under HMRC, Guidance HS293, cask whisky is classed as a ‘wasting asset’. Simply put, a wasting asset is an asset with a predictable life of 50 years or less. The natural evaporation that forms part of the maturation process of a whisky cask (known as the angel’s share), means whisky casks do not have a predictable life over 50 years. So under current tax laws profits from the sale of casks are not subject to capital gains.*
*It should be noted that if casks are bottled, the process will be subject to duty, VAT and potentially CGT as it is no longer classed as a wasting asset, due to the fact that it does not continue to mature in the bottle.
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