As we approach the end of the year, after the biggest budget announcement for a decade or more, planning for the end of the tax year and beyond is more important than ever. Whilst all the usual planning tips apply, such as maximising the use of tax bands and allowances, we are here to guide you through the most common changes arising from the budget and ensure you maximise the opportunities available.
Double Cab Pick ups
The tax treatment of Double Can Pick Ups is changing from April 2025, and not for the better! There is however an opportunity to take advantage of the current more favourable rules before then.
Currently, double cab pick ups are classed as vans for employment benefit purposes, which means not only can the VAT be reclaimed on purchase, but the van and van fuel benefit in kind is a flat rate £4,800 per year. This means where the vehicle is available for private use, a basic rate taxpayer would pay £960in tax on a company provided vehicle, and a higher rate taxpayer £1,920.
From 6 April 2025 these vehicles will be classed as cars for tax purposes. We are yet to see confirmation of the VAT treatment, but the benefit amount will change to a sliding scale based on the C02 emissions and the vehicle list price. For example, a Mitsubushi L200 Trojan with a list price of £31,000 and C02 emissions of 206g/km could be on the maximum benefit rate of 37%, or £11,470pa. Add to this a fuel benefit of £10,434pa, and this means where the vehicle is available for private use, from next tax year a basic rate taxpayer would pay £4,381 income tax on a company provided vehicle, and a higher rate taxpayer £8,761, each year. In addition the company will pay Class 1A National Insurance on the benefit at the new higher rate of 15%, another £3,285.
In addition, 100% capital allowance relief on purchase will no longer be available and instead only 10% capital allowances per annum can be claimed going forward.
Action: However, if the vehicle is already purchased, leased or ordered before 5th April 2025, or contracted for by 5th April and paid for by 1 October 2025, the current rules will continue to apply until disposal, lease expiry or 5 April 2029. If you currently use one of these vehicles, or were thinking of ordering a new one, you have a few months left to make the change.
Stamp Duty Land Tax
From 1 April 2025 the nil rate thresholds will be reducing:
- The current nil rate threshold of £250,000 will revert to £125,000, with the next £125,000 charged at 2% and
- The first time buyers nil rate threshold of £425,000 will revert to £300,000, with the next £125,000 charged at 5% (this applies to properties worth £625,000 or less, reducing to £500,000 or less from April).
For most, from April the extra SDLT amounts to £2,500 (£125,000 at a rate of 2%), and £6,250 (£125,000 at a rate of 5%) for first time buyers.
Action: Complete on property purchases by 31 March 2025 if at all possible.
The surcharge for the purchase of a second home, or through a company, increased from 3% to 5% on 31 October 2024, so unfortunately no planning can mitigate this.
Capital gains tax
Business owners have for many years been able to enjoy lower rates of capital gains tax when selling shares or business related assets. Business Asset Disposal relief (BADR, formerly known as Entrepreneurs Relief), has for many years reduced the capital gains tax rate to 10% when qualifying conditions are met, up to a £1m lifetime gain allowance. Whether this would be retained was the subject of much speculation prior to the budget, and fortunately it was, but with a catch.
The £1m lifetime gains threshold has been retained, but the 10% rate only applies until 5 April 2025. Thereafter the tax rate increases to 14% for 2025/26 and 18% in 2026/27.
Action: Complete on disposals of business related assets or shares before 5 April 2025 where possible to achieve the lowest tax rate. This not only applies to sales, but solvent company liquidations, management buy-outs, and company share buy backs, for example.
The general rate of CGT increased on 30 October 2024, aligning it with the rates for residential property at 18% and 24%, so again unfortunately no planning available for this.
Furnished Holiday Lets
The FHL regime brings tax advantages for those with qualifying properties but will be abolished from 1 April 2025 (companies) and 6 April 2025 (individuals). From this date the finance costs will no longer be an allowable deduction from profit, (20% relief is instead given as a tax credit as with other residential lets), no new capital allowance claims will be allowed, CGT reliefs will be unavailable, and profits will no longer count towards relevant earnings for pension purposes.
There are however a few areas where prudent planning could be beneficial in the transitional period. Whilst new capital allowance claims are not allowed from next year, you have until the end of March/5th April 2025 to make any claims, and existing pools can be carried forward, so consider this if any upgrades are required or claims haven’t previously been made.
If you are thinking of ceasing your FHL business, and do so before April 2025, you have 3 years from cessation to dispose of assets and claim the more favourable Business Asset Disposal Relief rate of 10% on any gains arising
If you have borrowings on your FHL property, consider what impact the changes in interest relief will have on your profits, rate of tax, and amount of tax payable. If you will be breaching the higher tax rate threshold, can borrowings be restructured in a more favourable way?
Action: consider your plans for the property in light of the changes and talk to us if you need to.
Inheritance Tax
IHT changes were also widely speculated about prior to the budget, and the subject of many headlines since. Two significant areas affected in Estate Planning are business assets and pensions.
Whilst farmers have hit the headlines since 30 October, business owners are also impacted by the changes announced to come in from 6 April 2026. Currently, qualifying business and agricultural assets, including shares in unquoted companies attract a generous relief which means they are effectively IHT free. This means many families have been relaxed about passing on assets, with older generations continuing to hold shares in the family company, or farming assets, instead choosing to pass them on as part of their Estate. In a major change, from 6 April 2026, only the first £1m of assets per person will qualify for the relief, and IHT will be due at an effective rate of 20% on business/agricultural assets over £1m (being 50% relief given and an IHT rate of 40%).
The tax could potentially be mitigated by gifting assets to future generations now, however individuals will need to survive 7 years for it to fall out of their estate completely.
The second major area of change was pensions. Currently, pension funds fall outside of an individual’s estate for IHT, however from 6 April 2027, unused pension funds will be brought into the estate and taxed at 40% where the nil rate threshold is passed. There is also a potential secondary impact if individuals have been trying to keep within the £2m estate threshold to keep hold of their individual £500,000 nil rate band (being the usual £325,000 plus £175,000 residence related element).
Finally, whilst AIM shares and other similar “unlisted” securities enjoyed similar exemption from IHT, this relief if now also reduced to 50%, meaning an effective rate of 20% IHT on AIM and similar shares.
Action: If your estate contains pensions, business or farming assets, including AIM shares and shares in the family business, now is the time to re-evaluate your IHT exposure. Speak to us to help you to work through this.
Take a look at our previous articles on IHT mitigation strategies here.
National Insurance
The rate of National Insurance employers pay on their employees wage is increasing from 13.8% to 15% on 6 April 2025.
Action: If as an employer you are paying bonuses, or arrears payments, consider paying them by 5 April 2025 to save 1.2% on your Employers Contribution.
In a second impact for employers, the secondary threshold for National Insurance (the amount above which Employers contributions are paid) will reduce from £9,100 to £5,000 on 6 April 2025, which will increase employers contributions by a further £615 in NI per employee.
In a beneficial move, the employment allowance, which is given against Employers Contributions, is increasing from £5,000 to £10,500, and the large employers restriction (where Employers NI is over £100,000) was removed.
Action: Whilst in the vast majority of cases it won’t be possible to mitigate the NI changes, employers should be assessing their situation now to forecast the impact of the additional NI on their business. This is especially crucial where employers will be impacted by the increasing National Minimum Wage rates.
Other planning tips
For wider, more routine tax planning assess your profits, income levels, and pension thresholds to ensure you maximise the use of lower rate and tax free bands, and don’t breach a higher threshold unless you have to. If December or March is your business year end, ensure any pension contributions are made or new assets are purchased before your year end to gain the tax relief in the current year. Top up ISA’s to make the most of tax free savings and investments allowances.
Looking forward
We have focused on some of the upcoming changes announced in the budget that will more commonly affect individuals and businesses, but the rules can be complex. Conditions often apply and changes usually affect more than one tax, so talk to us before making any big decisions. We would be delighted to work through your scenario and help you get into the best possible tax shape.
And of course, the 2023/24 tax return deadline is looming on 31 January, so make sure we have all your information to ensure you meet the deadline.