Autumn Budget 2024: Analysis on inheritance tax and capital gains tax

The announcements in the Autumn Budget threaten to create significant and lasting challenges for rural businesses of all sizes. The measures seem less rooted in economic rationale and more driven by political instinct. The budget stands to impact family businesses across the country — those the government has pledged to protect. Under the Chancellor’s proposed changes, from April 2026, families face the daunting task of raising substantial funds to cover inheritance tax (IHT). And, as of 30 October, anyone selling assets will face a higher capital gains tax bill if they are selling assets.

Chancellor Rachel Reeves announced some serious changes to capital taxes, in particular concerning inheritance tax (IHT).

The IHT allowance (known as the nil rate band) has been set at £325,000 since 2009 and had not been adjusted in line with inflation since. The chancellor has confirmed that the nil rate band will remain frozen until April 2030, but many families will be affected because of this fiscal drag.

From April 2027, pensions will be brought into the scope of IHT; this will result in a massive increase on the tax bill for those with a private pension. The government estimates this will raise £1.46bn a year by April 2030. The measure may result in a double hit, as it is unclear if the beneficiaries will continue to pay income tax on the pension proceeds if the pensioner dies after they turn 75, in addition to paying 40% IHT.

If you have a private pension, the change could result in a fundamental shift in how you think about accessing your money in retirement. You may want to start drawing down your pension, rather than relying on your individual savings. You should discuss your options with your independent financial adviser as soon as possible.

Perhaps more concerning for rural landowners are the restrictions to the IHT reliefs.  From April 2026, Agricultural Property Relief (APR) and Business Property Relief (BPR) will be capped at £1m in total. Assets beyond that level will receive 50% relief, resulting in an effective tax rate of 20%, after utilising the nil rate band.

This threshold is clearly set too low and would create significant challenges for those wanting to pass on their family businesses, as it will create substantial IHT bills for those families working day in, day out on the ground for our food security. The measures will have a knock-on effect on investment in the business and the viability of the whole operation on transfer after death.

In some ways, the announced measures are not dissimilar to the old capital transfer tax (CTT) that was introduced by the then Labour government in 1975, where agricultural property was not given full relief. CTT was criticised for discouraging investment and transfer of viable business between generations. While these past lessons may provide some guidance, there is no question that families now face a serious obstacle.

Although the extension of APR to land managed under an environmental agreement provides a silver lining and is to be welcomed, it is nonetheless a disastrous Budget for many family businesses.

The CLA will continue to lobby hard for the protection of APR and BPR, and to ensure that the government is aware of the economic damage that these changes would cause. The CLA will also be issuing more detail on what this means and providing practical guidance to members in the coming weeks.

Though it is natural to feel anxious, families should avoid making impulsive decisions in response to this budget. The UK Government has announced that the proposals will be consulted, expected in early 2025 and the CLA is working up case studies and economic modelling in response. In the meantime, the transitional period should be used to evaluate and, where possible, optimise existing structures.

One strategy may be to review your business portfolio and ensure both spouses individually hold at least £1m worth of agricultural or business property. This threshold should be utilised at each death, as it is not transferable like the nil rate band. Another is to consider leaving eligible assets directly to your successors, rather than passing them between spouses; this may help maximise the reliefs.

Yet another option to consider is making lifetime gifts of assets. Generally, if the donor survives seven years after making the gift, it will fall outside of their taxable estate. However, this approach may trigger a capital gains tax (CGT) charge, though holdover relief could be available in certain cases. Care must be taken to ensure that such gifts are not subject to the gift with reservation of benefits rule, which applies if the donor continues to derive benefits from the gifted property. Selecting suitable assets for gifting will be a crucial decision. There are, however, certain provisions that you will need to consider in further detail. If this is something you are thinking of, please get in touch with the CLA tax department or consult your professional advisers.

While the specifics of the policy are still unfolding, taking a proactive look at your options is prudent. This includes assessing asset distribution between spouses, planning around the £1m limit, and seeking professional advice tailored to your unique circumstances. The CLA advisory team is available to offer guidance.

In addition to the changes to IHT reliefs, the Budget also adjusted the capital gains tax (CGT) rates. With effect from 30 October 2024, the lower rate of CGT has been increased from 10% to 18% and the higher rate from 20% to 24%. However, the rates of CGT on residential property will remain at 18% and 24%.

The business asset disposal relief (BADR) will remain in place, but the rate will also rise to 14% from 6 April 2025 and will match the main lower rate of 18% from 6 April 2026.

These CGT hikes on the sale of business assets effectively discourage investment, making it harder for landowners and family businesses to develop, diversify, or exit when needed. Many in the rural sector have relied on the sale of business assets to fund their retirement, and these higher CGT rates may severely restrict their exit options.

This increase is also unfair for long-term asset owners, such as rural landowners and family businesses, especially if they have to sell assets to stay afloat. Long-term ownership is being penalised, as owners are also taxed on inflationary gains. The CLA will push for the reintroduction of indexation allowance, so that long-term investment in business assets is encouraged.

With IHT thresholds set well below asset values typical of rural estates, and with CGT reducing returns on business sales, families face increasingly challenging financial pressures.

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