Autumn Budget — tax and estate planning tips for business owners

While some business owners may have been rushing to complete deals and push through estate planning in an attempt to get out ahead of the Autumn Budget, for others this presented an opportunity to step back and consider their long-term goals and aspirations. 

Here, Duncan Bailey, Steven Appleton and Huzaifa Moosa explain how the Autumn Budget affects business owners — including six key steps to take now to ensure that your assets pass on in-line with your wishes and goals.

Capital gains tax to drive business exits

Basic rate and higher rate

Increases to the basic rate and higher rate of capital gains tax (CGT) took effect from the date of the Budget (30 October 2024). The basic rate increased from 10% to 18% and the higher rate increased from 20% to 24% (with the residential property surcharge now ineffective). 

Additionally, CGT for carried interests (which largely affects the private equity sector) increased from 28% to 32%.

Investors’ Relief

Investors’ Relief — which reduced the rate of CGT to 10% on the disposal of certain shares in a trading company — had its lifetime limit reduced from £10m to just £1m, which will affect all qualifying disposals made after 30 October 2024. 

Business Asset Disposal Relief

Business Asset Disposal Relief (BADR, formerly known as Entrepreneur’s Relief) will also see an increase from 6 April 2025.

Additional tax implications for business exits and gifts

These changes mean that business owners hoping to exit businesses or planning to gift shares to family members may need to consider additional tax implications. This may affect how sales are structured and gifts are made — perhaps involving trust structures.

Although the changes to the headline CGT rates may have gone up immediately, the increases to BADR are more gradual. This could see some business owners rushing to push through sales or gifts ahead of April 2025 and April 2026. 

If you’re considering selling your business or want to learn more about the range of options available, our Deal Advisory team can assist. Our team provides bespoke financial and strategic advice — with guidance throughout complex corporate transactions — to make great deals happen.

For those founders focused on protecting the legacy and culture of their businesses, the increases in CGT rates may well encourage a look at employee ownership as an attractive route to exit. Disposal of eligible shares to employee ownership trusts occurs on a no-gain, no-loss basis — so there would be no CGT payable by the business owner (subject to certain conditions being met).

Inheritance tax to impact pensions and gifts

Nil Rate Bands

The current Nil Rate Band of £325,000 and Residence Nil Rate Band of £175,000 (on which tax is charged at 0%) will remain frozen until 2030. Had the Nil Rate Band increased in line with CPI, it would now be over £500,000 — so this has served to pull more people into the inheritance tax (IHT) net (the so-called fiscal drag).

The Residence Nil Rate Band will continue to taper for every by £1 for every £2 that your estate is over £2m. If you die without expending these allowances and leave a spouse or civil partner, they can benefit from your allowances in addition to their own so that up to £1m can pass effectively free of IHT.

Unused and inherited pensions

Where pensions are unused and inherited or pension death benefits are paid, they’ll be subject to IHT. From April 2027, this will be aggregated with your estate when you die for IHT purposes. This could mean that the reliefs your estate may have otherwise benefitted from could be tapered and funds that could have been used to pay IHT will be subject to the same tax.

Business Relief and Agricultural Relief

It was widely expected that there would be reforms to Business Relief and Agricultural Relief. Despite speculation that they could be abolished altogether, the reforms were more nuanced than this.

From April 2026, Business Relief and Agricultural Relief will apply at a rate of 100% (i.e., free of tax) for the first £1m of business and agricultural assets (combined) in an estate. Thereafter, only 50% relief is available — so everything over the £1m threshold will be taxed at 20% (instead of 40%). 

AIM shares will only attract 50% relief and won’t form part of the £1m allowance. This is clearly a marked change from the current regime, which allows Business Relief and Agricultural Relief to apply at up to 100% on all qualifying assets, regardless of value.

Crucially, these changes will not only impact tax on your death but also affect lifetime gifts to individuals (if you die within seven years of gifting), gifts into trust and the ongoing taxation of trust structures.

Historically, many business owners have placed some of their shares into trust pre-sale in an effort to put the cash value of these outside of their estate on their death. This was done with the knowledge that Business Relief would mean no inheritance tax would be payable on creating those trusts. However, with the new rules, business owners need to limit the value of the shares they can put in trust. The Government hasn’t yet revealed detailed rules on how this affects gifts into multiple trusts or whether the £1m allowance will refresh every seven years or be treated as a lifetime allowance.  A technical document has been promised, which will confirm all these details in early 2025.

You may now be more inclined to gift shares to family members and loved ones in your lifetime because of the tax benefit, where previously you may have preferred to do so on death. However, caution should be exercised as this will form part of your loved one’s estate and may come with risk (such as divorce, bankruptcy, etc). Structures can be put in place to govern control over the business while gifting some of the value. Parents gifting shares to their children may want to do so with the proviso that they sign pre-nuptial or post-nuptial agreements.

Business owners will also need to consider how this factors into their estate planning. If the rest of your estate doesn’t have sufficient liquidity to pay any tax due, you’ll need to consider where that cash will come from. Will it mean that your successors have to sell the business (whether in whole or in part)? Will the company need to declare a dividend to pay the inheritance tax, even though such a dividend will be subject to income tax? Are insurance policies already in place? Does your Will need to be restructured? 

Six key estate planning steps for business owners 

1. Review and update your Will and succession plans

Ensure that your Will accurately reflects your wishes and incorporates the most tax-efficient structures for your business interests in light of these new rules.

2. Review existing trust structures

Consider whether any existing trust structures and vehicles in place to protect family wealth and manage business assets are still right for you following the Budget.

3. Consider gifting shares

One potential way to reduce inheritance tax exposure is by gifting shares in the business to children or key employees while you’re alive. If done carefully, this can also take advantage of CGT reliefs. Thought should be given as to whether this should be done alongside a pre- or post-nuptial agreement to protect the business interests against the risk of divorce. 

4. Review your pensions

Since the previous increased allowances, many business owners maximised pension contributions before selling or transferring business assets to reduce overall tax liabilities. However, this may no longer be appropriate, as your pension will be brought into your estate for tax purposes — so consider whether alternative uses of your funds may be more appropriate.

5. It’s not all about the tax

Although tax is important for many of us, for others it’s part and parcel of the process. It may be more important to ensure that proper arrangements for succession are made so that the business can continue to thrive with the right people at the reins or equity can be extracted — regardless of the tax consequences.

6. Realign your business strategy with your long-term aspirations

Undertaking a strategic review of your business and its readiness for exits and other potential events is an important aspect of maximising value and meeting your objectives with regards to timing, approach to exit and the longer-term aspirations for the business that you’ve built. 

Talk to us

Through Brabners Personal, our award-winning solicitors and services can help you to plan effectively for your future. We excel in advising business owners on how to structure your affairs to ensure that business assets are passed on in the right way while taking account of the new tax regime. 

To discuss your estate planning and tax exposure, talk to us by giving us a call on 0333 004 4488, sending us an email at hello@brabners.com or completing our contact form below.