As we approach the much-anticipated October budget, small business owners across the UK are bracing for potential IHT, CGT and BADR changes that could have far-reaching implications for their finances. Keir Starmer’s recent Navigating Potential Tax Changes in 2024: What Small Business Owners Need to Know About the Upcoming Budget
As we approach the October 2024 budget, small business owners are facing a lot of speculation about potential tax changes that could impact their operations and finances. These changes could affect everything from Inheritance Tax (IHT) to Capital Gains Tax (CGT), Business Asset Disposal Relief (BADR), and more. Here’s a straightforward guide to help you understand what might be coming and how it could affect your business, especially considering the potential IHT, CGT and BADR changes.
Inheritance Tax (IHT): Possible Changes to Business Property Relief (BPR)
Inheritance Tax can be a big concern if you’re planning to pass your business on to the next generation. Right now, Business Property Relief (BPR) helps by reducing the value of your business for tax purposes, potentially down to zero, making it easier to transfer without a huge tax bill. However, there’s talk that Labour might tighten the rules on BPR to increase tax revenue from wealthier individuals.
If these changes happen, transferring your business could become a lot more expensive. A larger portion of your business value could be taxed at 40%, which might force some families to sell the business just to cover the tax. It’s wise to review your estate planning strategies now to protect your business from these potential IHT changes.
Capital Gains Tax (CGT): Potential Alignment with Income Tax Rates
Capital Gains Tax is the tax you pay when you sell something, like your business, for more than you paid for it. Right now, the top CGT rate is 20%, but Labour is considering raising it to match income tax rates, which could be as high as 45% for top earners.
For business owners, this could mean a much higher tax bill if you plan to sell your business or other assets. Timing could be crucial here—if you’re thinking about selling, you might want to do it before any new rates come into effect given the impending CGT changes.
Business Asset Disposal Relief (BADR): A Valuable Benefit at Risk
Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ Relief, lets you sell your business and pay a lower CGT rate—just 10% on the first £1 million of gains. But there’s concern that Labour might reduce this benefit or eliminate it altogether.
If BADR is scaled back or removed, it could take away a key financial incentive for entrepreneurs looking to sell their businesses. This could also discourage investment and innovation in the small business sector amidst the potential BADR changes.
National Insurance Changes: What Could Happen?
Labour’s budget might include changes to National Insurance that could affect both business owners and employees, there’s speculation that Labour might introduce National Insurance contributions for working pensioners. This hasn’t been confirmed, but it’s something to watch, especially if your business employs older workers or if you’re working past retirement age yourself.
VAT on Private School Fees: What It Means for You
Labour has also implemented a new VAT charge on private school fees, starting from January 2025. This means that private school tuition will cost 20% more due to the added tax. Additionally, the removal of charitable business rates relief for private schools will take effect in April 2025.
For small business owners, this could indirectly affect consumer spending, especially if your customers have children in private schools. Higher education costs might reduce their disposable income, which could impact your business if you rely on consumer spending.
Summary: Preparing for the 2024 Budget
The potential tax changes in the 2024 budget highlight the need for proactive planning. Here’s what you can do:
- Review Your Estate Plans: With potential changes to BPR and IHT, it’s crucial to ensure your business is protected from IHT, CGT and BADR changes.
- Consider Timing of Asset Sales: If you’re thinking about selling your business or other assets, doing so before any potential CGT increases could save you money.
- Maximize BADR Benefits: If you qualify for BADR, take full advantage of it now before any changes are made.
- Stay Informed: Keep up with the latest developments and consult with a tax advisor to navigate these changes effectively.
By staying informed and planning ahead, you can better manage the risks and opportunities that may arise from the 2024 budget, including IHT, CGT and BADR changes. Don’t wait—start preparing now to safeguard your business’s future.
Contact us here to sign up for our event on 31 October which will demystify what the Budget means and how it applies to you as a business owner as soon as it’s happened.
