Legal advice on the changes made to Capital Gains Tax and Inheritance Tax

What were the key changes to CGT?

The Chancellor’s recent announcement immediately introduced higher CGT rates:

• Basic-rate taxpayers now face an 18 per cent CGT rate, up from 10 per cent.
• Higher-rate taxpayers will pay 24 per cent, up from 20 per cent.

These increases align CGT on most assets with the rates previously set for residential property sales, potentially impacting individuals who are selling long-held investments or larger asset portfolios.

Notably, the CGT annual allowance remains at £3,000, a substantial reduction from its £12,300 level in 2022/23.

This means more gains will be subject to tax, reducing the tax-free threshold that many rely on for capital growth.

If you are managing an estate, these new CGT rates make planning more essential.

How has IHT changed?

The Autumn Budget introduced a 20 per cent IHT charge on the value of agricultural and business property above £1 million.

This measure, effective from April 2026, represents a significant shift from the longstanding policy allowing farmland and businesses to pass to beneficiaries without IHT liability.

While you may find these changes unsettling if you own such property, it’s essential to remember that the new threshold means only the most valuable estates will likely face this new IHT charge.

Smaller family farms, for instance, may still qualify for relief, particularly when owned jointly by couples, who can each benefit from a £500,000 relief if a property is included.

IHT on pensions: A new layer of complexity

The inclusion of unspent pensions in IHT adds another consideration.

Although these can still be passed down to your spouse tax free, IHT now applies to your pension when passed to beneficiaries like your children or loved ones.

For estates where pensions make up a substantial part of the value, your beneficiaries now face more detailed administrative requirements, which could delay access to funds.

The Government’s proposed process involves identifying all pension schemes, calculating IHT due via an HMRC tool, and waiting for responses from all providers.

This complex process may be particularly challenging for bereaved families already navigating probate and other estate matters.

Our legal advice for managing CGT and IHT risks

Given these changes, effective estate planning has become even more crucial.

Here are a few potential options to explore with a solicitor, as they require careful consideration and expert guidance:

Trusts as a tax-efficient vehicle

Trusts can serve as a powerful tool in estate planning, allowing you to transfer assets in a way that may reduce CGT and IHT.

By placing assets in trust, you can potentially lower the taxable value of your estate while retaining some control over how and when beneficiaries access these assets.

Certain types of trusts, like discretionary trusts, offer flexibility in this regard.

However, trust structures come with complex rules and specific tax implications, so it’s essential to discuss your objectives with a legal professional.

Lifetime gifting

Making lifetime gifts to family members or charities can reduce the value of your estate, potentially lowering your IHT bill, however, a disposal may still be subject to Capital Gains Tax.

Gifts made more than seven years before your death are generally excluded from IHT, and utilising the annual gift allowances can provide further relief. Gifts that do not exceed the seven year period may still make use of Tapering Relief, reducing the rate of Inheritance Tax payable on a sliding scale.

Gifting requires careful planning to ensure it aligns with your overall financial needs, so consulting a solicitor to establish a structured gifting plan is wise.

Spousal transfers and exemptions

Transferring assets to a spouse or civil partner can be a highly tax-efficient option, as such transfers are generally exempt from IHT and CGT, although still included in the estate on second death when the main IHT is payable.

However, making sure the main residence is held in joint names allows full IHT tax reliefs on second death for property passing to direct descendants.

We would usually weigh up the impact of CGT and IHT and advise accordingly.

This approach can ensure that wealth is passed on in a tax-efficient manner, particularly if your spouse or partner is in a lower tax bracket.

A solicitor can help you evaluate the suitability of spousal transfers for your situation and explore ways to structure these assets effectively.

Each estate is unique, and it’s essential to tailor these strategies to your personal circumstances.

A solicitor with experience in estate planning can offer guidance on how best to structure your estate, navigate tax reliefs, and optimise your financial legacy for future generations.

For personalised advice and to explore your options further, please speak with one of our qualified solicitors.