Post-Budget wealth planning strategies

The new UK Government’s recent Budget delivered plenty to think about for wealth holders.

From changes to Capital Gains Tax (CGT), Inheritance Tax (IHT), moving away from a domicile-based IHT regime, and more, the Budget included multiple announcements impacting wealth planning strategies. 

However, as Ahad, explains, there are plenty of steps wealth holders can take to respond to the changes that were announced:

• Capital gains Tax
• Inheritance tax
• Inherited pension pots
• New residence-based Inheritance Tax regime
• The Foreign Income and Gains regime (FIG)
• Business ownership and inheritance 
   

Capital gains Tax “CGT”

As was widely reported in the lead up to the Budget, the Chancellor announced that CGT rates would increase from 30 October, with the lower and higher rates rising from 10 per cent and 20 per cent, to 18 per cent and 24 per cent respectively. 

Ahad says investors may want to mitigate the impact of these CGT rate rises through investment structuring, potentially leaning more on vehicles such as life assurance bonds.

“If clients are worried about the increase in CGT rates, it may be worth considering investing via a wrapper,” he says. “Investments can compound at a zero tax rate, however gains will be subject to income tax (up to 45 per cent) rather than CGT (up to 24 per cent).”

Inheritance tax “IHT”

The Budget also saw announcements on IHT, with the current inheritance tax thresholds, due to be frozen until April 2028, now frozen for a further two years, to April 2030.

“The nil rate band has not increased since 6 April 2009, and freezing it has resulted in more taxpayers becoming subject to UK IHT over time,” Ahad explains, adding that this may lead to an increased focus on gifting.

“Gifts made out of surplus income remain IHT free – and so are a very valuable IHT relief. Other gifts will also be considered a PET (potentially exempt transfer). Assuming the donor survives for seven years, there will be no IHT, while if they survive for at least three years, taper relief may apply, thereby reducing any IHT charge arising. For those who are concerned about IHT, but are not yet ready to explore the main IHT planning strategies then life insurance can have a place and provide funds to your beneficiaries to either meet in full or part the anticipated IHT liability.”

• Action point: Consider whether gifting could help you reduce your IHT tax exposure.
• Action point: Ask your adviser whether vehicles such as life assurance bonds and other wrappers would benefit your portfolio.
• Action point: Ask your adviser whether life insurance should be implemented as part of the overall IHT planning strategy.
   

Inherited pension pots

Further inheritance changes were announced in relation to inherited pension pots. Current proposals suggest these will become subject to IHT from 2027, however this is first subject to a consultation, and changes can be expected. This creates an element of double taxation when related to deaths over 75 – as the funds will be subject to both IHT and income tax on the income the beneficiaries receive. 

“Where clients are funding their pensions purely for estate planning purposes, advisers should keep a close eye on how the consultation develops and be prepared to reconsider the appropriateness of this,” he says. “Where clients have left pension funds undrawn mainly for estate planning purposes, this should also be reviewed – and this is particularly important where clients are over the age of 75.”

“With future possible changes in mind where pension funds are not required – considering taking the tax-free cash and making gifts may be a more attractive option than leaving them in the pension.”

• Action point: Review your pensions strategy (with your pensions advisor) and whether taking cash may now be a better option.
   

The new residence-based IHT system

From 6 April 2025, IHT will change from a domicile-based system to a residence-based one. 

The big change is that individuals who have been UK tax resident for 10 or more of the previous 20 tax years – known as being a ‘long term resident’ – will be subject to UK IHT on their worldwide assets.

Once considered a long-term resident, an individual will retain that status for as long as they are a UK tax resident. They will also be considered long-term resident for IHT purposes once they are no longer a UK tax resident, with the ‘tail’ ranging from 3-10 years depending on how long they were a UK tax resident prior to leaving.

Ahad says this change could have a significant impact on existing trusts and influence clients' thinking regarding forming new trusts.

“Going forward, an existing trust set up by non-domiciled individuals will lose many of the UK tax protections previously held,” he explains. “Income and gains arising within a trust could be attributed to and taxable of the settlor, and once the settlor becomes long-term resident, the trust will remain subject to UK IHT under what is called the relevant property regime. This means that during periods of UK residence, a periodic charge of 6 per cent will be payable on the 10-year anniversary, whilst facing an exit charge once the settlor has left the UK and falls out of the charge to IHT. 

“It was pleasing to see a technical change to the original proposals, that trusts settled before 30 October 2024 will not be captured by the Gift with Reservation of Benefit (GROB) rules, which can deem trust assets to form part of the estate of the settlor for IHT purposes and subject to the relevant property regime 10 yearly charges. This will avoid double taxation.”

In terms of forming new trusts, Ahad says it should be noted that trusts are used for many purposes outside of tax – and will continue to remain attractive for succession planning, asset protection, and family governance reasons, regardless of the tax changes.   

• Action point: The use of trusts has become more complex. Ask your advisor to consider whether a trust is still suitable for your longer-term objectives and what planning might be considered appropriate to ensure efficiency under the new regime.
   

The impact of the FIG regime

Whilst announced under the previous Government, further non-domicile-related changes were announced in the Budget in the form of the Foreign Income and Gains (FIG) Regime. Under the FIG regime, qualifying individuals can elect for certain foreign income and gains to be exempt from UK tax, regardless of whether the income or gains are brought to the UK.

This regime will be available in the first four years of UK tax residence, provided the individual has been a non-UK resident for at least the previous 10 years.

Ahad says that while this offers clear potential tax benefits, it’s not necessarily straightforward.

“Individuals who qualify will be able to make a claim to pay no UK tax on FIG arising during that time,” he says.

“However, the FIG subject to this tax exemption needs to be quantified and disclosed on a tax return. This in itself may be an issue, as it will be complicated to produce a number – especially when no tax is due on this amount.

“That said, individuals who qualify for the FIG regime and receive distributions from non-UK trusts will be able to receive those benefits in the UK without paying UK tax.”

However, Ahad doesn’t think this will have a material impact on non-doms’ current strategies.

“Non-doms have been considering their options ever since the Conservative Government announced the abolition of the remittance basis,” he adds. “The impact of these changes remains to be seen.”

• Action point: The FIG regime has many new elements, so ask your adviser to explore the impact on you specifically.
   

Business ownership and inheritance

Another Budget announcement likely to have an impact on some is the reform of Agricultural Property Relief (APR) and Business Property Relief (BPR) from April 2026. Under the new plans, 100 per cent relief will be available against the first GPB1 million of combined agricultural and business assets, but will be 50 per cent thereafter.

Ahad notes this new tax change will likely affect some owners of UK trading businesses and owners of UK agricultural land – particularly those in long-term ownership by families prioritising succession over many generations.

He says that capping IHT relief could create financial difficulties for such owners, both in paying the tax and in planning for the future of their businesses.

“Often, such owners are not ‘cash rich’ – and will need to call on the company in question to pay them a dividend to pay the business tax. This will, in effect, result in a double tax bill, given the higher dividend rates of tax are 39.35 per cent and the new BPR charge will be 20 per cent. This leads to an effective rate of tax far higher than shown in the Budget headlines.”

Under current rules, liabilities relating to agricultural and business property can be paid in equal annual instalments over 10 years, in certain circumstances. If the property is sold, then the outstanding instalments become due straight away, subject to reinvestment of the proceeds in qualifying property.

“HMRC currently charges 7.5 per cent interest on late paid tax– so this may make paying by instalments prohibitive” Ahad continues. “Gifting business assets qualifying for holdover relief could be an option to lessen the impact of inheritance tax.”

• Action point: If you are expecting to pass down a business or to inherit one, the IHT implications have become more critical. There are options available to mitigate the impact, so ask your adviser to explore the various options.
   

Act now for long-term success

Ahad adds that, in addition to the above steps, there are a number of actions wealth holders and investors can take now to ensure they are protected against change.

“As always, it’s important for wealth holders to make sure they have the right wealth advisers, tax advisers, lawyers, and trustees in place,” he says. “But there are other ‘basics’ that remain important, too. They need to make sure their wills are up to date and tax efficient, use any IHT allowances and exemptions, and Lasting Powers of Attorney (and international equivalents – where relevant) should also be implemented.

“Now may also be the time to consider restructuring personally owned assets, while taking advantage of any available time between now and changes that are still to come in. It’s equally important to consider non-tax considerations particularly whether the next generation are ready to take ownership of the family legacy.

“At HSBC Global Private Banking, we’re able to support clients holistically and help achieve their wealth planning needs. While we can't give tax and legal advice, we can help clients take advice on issues impacting them and then help implement it – so now is the time to engage.”