"Proposed changes to capital gains tax, especially aligning it with income tax as recommended by the OTS and IFS, could have very significant consequences. With 11% of high-net-worth individuals already viewing CGT as one of the least fair taxes, many are considering leaving the UK to realise gains"
- Jordan Gillies - Saltus
There is widespread speculation that the Government is planning to increase the amount of money it raises through inheritance tax (IHT) in the upcoming Budget, with reports suggesting that the chancellor is considering multiple changes to the tax, which currently includes several exemptions and reliefs.
Currently, IHT is charged at 40% on the property, possessions and money of someone who has died, but only above £325,000 – the nil-rate band. It is possible that the Chancellor may lower this threshold or remove it altogether. She may also consider removing the current exemption on pensions.
Speaking about the potential changes, Jordan Gillies, Partner at financial planning firm Saltus, said:
“Pensions can currently be passed on IHT-free, but after age 75 they are only accessible at the recipient’s marginal tax rate – potentially 40% or 45%. So, the removal of inheritance tax benefits from pensions could create a double tax hit for beneficiaries.
“Many high-net-worth individuals tap into their pension funds last to make the most of IHT advantages that currently accrue to pensions, but this change could upset that approach. The recent trend of increasing pension contributions following the scrapping of the lifetime allowance might reverse, pushing many towards options like nil rate band trusts instead.
“Although if the nil rate band is removed – which would feel like a stealth tax – families could be pushed to explore other options like insurance products for IHT planning. It would also likely drive up gifting levels which could reduce Treasury revenue.”
Currently, you do not have to pay IHT on gifts given as long as they were given seven years before you die, and you can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your ‘annual exemption’. Gifting is another area the Chancellor may consider changing – potentially removing or extending the seven-year rule or introducing a 10% charge on larger lifetime gifts.
Gillies says this will put a lot of pressure on families.
He explains: “If taper relief is removed or the seven-year rule is extended, IHT planning will need to start earlier, adding pressure on HNWIs. Moreover, introducing a 10% charge on lifetime gifts over a £30,000 allowance would hit families hard, especially those trying to help children onto the housing ladder.
“With HNWIs already viewing IHT as the most unfair tax, according to the latest data from the Saltus Wealth Index, this change would only add to that frustration.”
Capital gains tax
Mr Gillies said: “Proposed changes to capital gains tax, especially aligning it with income tax as recommended by the OTS and IFS, could have very significant consequences. With 11% of high-net-worth individuals already viewing CGT as one of the least fair taxes, many are considering leaving the UK to realise gains.
"Our latest Saltus Wealth Index reveals that 15% of HNWIs plan to leave the UK within the next 12 months. A further 18% are considering it, and we have already had clients talking about temporarily moving to lower-tax jurisdictions like Cyprus. Residency can be claimed here in just 30 days. This could also lead to a surge in the use of offshore bonds and Venture Capital Trusts (VCTs) to shelter gains.
“In property markets, a higher CGT rate on sales may lead to large-scale disposals before the next fiscal year, potentially inflating rental yields. 11% of BTL property owners say they plan to sell all their properties, and we may also see HNWIs shift away from property and into tax-efficient vehicles like offshore bonds or VCTs. Data from the Saltus Wealth Index shows that 37% of HNWIs already invest in VCTs, and a further 46% plan to.
He concludes: “For estates, the possibility of a double whammy of CGT and inheritance tax – effectively two lots of taxation at 40% each – could push many towards more aggressive tax planning, likely leading to increased use of shelters or even relocating wealth offshore. These changes could significantly reshape tax behaviour among the wealthy, with serious implications for UK tax revenues and property markets.”
