Rachel Reeves’s first Budget as Chancellor delivered multiple tax rises, as was widely expected.
Some of these rises cannot be avoided by indivudal taxpayers, but there are behaviour changes you can make to try and limit the impact of other increases.
i spoke to tax experts on the action you could take to react to some of the biggest tax changes from Wednesday’s fiscal event.
Capital gains tax changes
Capital Gains Tax (CGT) is a tax on the profit when you sell something – like property or shares – that have increased in value.
The rate of CGT on property was left unchanged on Wednesday at 18 per cent and 24 per cent depending on your other income.
The main rates of CGT that apply to assets other than residential property went from 10 per cent and 20 per cent to 18 per cent and 24 per cent respectively.
Other changes were also made, for example, people who sell part of their business usually pay a lower rate of CGT under something known as Business Asset Disposal Relief (BADR).
Before the Budget, this meant they paid 10 per cent on all gains on qualifying assets, but this has been increased to 14 per cent.
All the changes to CGT apply from the day of the Budget (30 October).
“Delaying such increases usually encourages a flurry of transactions as taxpayers look to cash in before the rate change, however an immediate change removes this opportunity,” said Stefanie Tremain, a partner at accountancy and tax advisory Blick Rothenberg.
However, she said there were several actions that people could take, to try and beat the rise.
They key actions that can be taken below:
- Sell assets sitting at a loss before 5 April 2025. All capital gains and losses realised in a tax year are pooled. “Realising a loss before 5 April would ensure the loss is offset against gains subject to the increased tax rates,” explains Ms Tremain, which would limit your tax bill.
- Consider making an Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) investment now. These schemes are high-risk investments with tax breaks for income tax and CGT. For EIS investments it’s possible to defer a capital gain until a later tax year, whereas with a SEIS investment up to 50 per cent of the investment amount can be permanently exempt from tax. Gains realised on EIS and SEIS shares are themselves exempt from CGT on disposal provided certain conditions are met. But you should be wary before making these sorts of moves. “As these investments are high risk it’s important that advice is taken before making such an investment,” explains Ms Tremain.
- For future sales, consider transferring assets between spouses/civil partners. If they have an unused annual exemption or would pay CGT at the lower rate, this could save you a tax bill. “Transfers between spouses and civil partners are exempt from CGT, which means your spouse would simply take on your original base cost details,” explains Ms Tremain.
- Use your ISA allowance and your pension. Income and capital gains within ISA wrappers are still exempt from tax, so it highlights the importance of wrapping shares in these in the future. “In particular, investments held within pensions and ISAs aren’t subject to capital gains tax, nor are the dividends they produce subject to income tax. A rise in capital gains tax, especially combined with an annual CGT allowance of just £3,000, means investors should prioritise pensions and ISAs if they’re hoping for growth on their investments,” says Laith Khalaf, head of investment analysis at AJ Bell.
- You can also do nothing. “The good thing about CGT is that it is in theory an optional tax and if you do not sell an asset, you do not pay CGT. Taxpayers could hold on to assets and wait until such time as they have a capital loss they can offset, or until rates come down or the annual exemption is increased,” says Ms Tremain.
Inheritance tax changes
Inheritance tax (IHT) is paid on the estate of someone who’s died. The standard rate is 40 per cent over a £325,000 threshold, though there are multiple exemptions and reliefs, which mean this threshold is higher for many people.
At the moment, inherited pensions do not count as someone’s estate for the purposes of IHT.
The person who inherits the pension only has to pay income tax – and even that depends on the type of pension pot they inherit, and the age of the person who is passing the pension on.
But that is set to change in the future.
From 6 April, 2027 most unused pension funds and death benefits will be included within the value of a person’s estate for IHT purposes and pension scheme administrators.
Additionally, Labour will reform Agricultural Property Relief (APR) and Business Property Relief (BPR) on IHT.
Relief of up to 100 per cent is currently available on qualifying business and agricultural assets that are passed on after death.
From April 2026, the first £1m of combined business and agricultural assets will continue to attract no inheritance tax at all – but for assets over £1m, inheritance tax will apply with 50 per cent relief, at an effective rate of 20 per cent.
There are a few changes you can make to try and limit the tax owed.
- Consider spending more of your pension during your lifetime. Pensions that are taken during your lifetime are taxed as income, so as long as you take less than £50,270 per year, you will only pay a 20 per cent rate of tax – the incentive to try and pass a pension on is now a little lower. “Retirees and savers have 18 months to review their long-term plans. As defined contribution pension funds could now be subject to up to 40 per cent IHT on death, we will probably see greater withdrawals from pension pots,” explains Gary Smith, financial planning partner at wealth management firm Evelyn Partners.
- Gifting your pension during retirement could avoid IHT. “Taking uncrystallised pension lump sums and gifting these to the next generation also has the potential to lift them out of the IHT trap provided you live for another seven years. But taking financial advice is essential before making any decisions,” explains Russell Miles, a senior personal finance commentator at Charles Stanley. No tax is due on any gifts you give if you live for seven years after giving them – unless the gift is part of a trust.
- Transferring ownership of farms and businesses during the owner’s lifetime. “Those affected should consider beginning to cascade the wealth within the owner’s lifetime. This requires businesses and farms to pass on some level of ownership prior to the owner’s death just to ensure that they don’t go bust simply to trying to fund a hefty tax bill,” explained Julia Rosenbloom, tax partner at law firm, Shakespeare Martineau.
Stamp duty for second homeowners
Stamp duty is a tax paid on the purchase of a home. From Thursday (31 October), the rate of stamp duty for anyone buying an additional property or second home increases by two percentage points to 5 per cent.
This is a very difficult tax to limit, given it applies immediately.
“Those who are expanding a property investment business will have to urgently review their budgets, costs and forecasts to account for this unexpected outgoing,” said Ms Rosenbloom.
Rachael Griffin, tax and financial planning expert at Quilter, explained: “For those looking to expand or enter the buy-to-let market, higher stamp duty will raise the upfront costs of purchasing additional properties.
“Prospective buyers might consider exploring investment alternatives, like real estate investment trusts (REITs), which offer exposure to property markets without direct ownership costs if they are keen to for that kind of exposure. The recent stamp duty hike for buy-to-let properties raises the cost barrier, no doubt prompting some investors to look at other assets entirely.”
If your second home is your replacement main residence, but you have not yet sold your old one, then if you sell your previous main home within three years of buying your new home, you can apply for a refund of the higher stamp duty rates if stamp duty that you paid on your purchase.