Business Matters – Issue 39

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Tax-smart toolkit – Equipping you for tax-year-end success
Part 1

When it comes to tax planning, timing is everything. And while a business’s accounting year-end can fall at any time, the upcoming tax year-end on 5th April means there’s no time like the present to check in with your personal finances.

Ensuring you’re making the most of your available tax reliefs each tax year can not only help you see where you stand, but inform your future plans too. With so many moving parts, however, having to make tax-smart, informed decisions can be daunting.

The next two issues of Business Matters will therefore be special tax year-end editions. We’ll be focusing on any changes from the Autumn Budget that will impact your tax year-end, as well as covering the key ways you can ensure you’re making the most of your allowances.

As always, talking through your options with an expert who understands your financial goals will help you feel confident about the choices you’re making.

Let’s start a conversation today. Together, we can make your hard-earned wealth truly count!

Spring in the shadow of the autumn (budget)

2024 was a challenging year for entrepreneurs and personal savers alike. It was a year of change, with more than half the world’s population going to the polls.

And, following a change of power in the UK, Labour’s Autumn Budget was one of the biggest and most far-reaching in recent years, moving the goalposts for those with long-term financial plans in place.

Here are some of the key takeaways for entrepreneurs, ahead of 5th April:

• Capital Gains Tax (CGT) on sale of investments, shares or other assets has risen from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher or additional rate taxpayers.

• For Business Asset Disposal Relief (BADR), the current 10% rate on the first £1m of qualifying disposals will increase to 14% in April 2025 and again to 18% in April 2026.

• It has been proposed that Inheritance Tax (IHT) will be payable on unspent defined contribution pension pots from 2027.

The changes are already having an impact – changes to CGT are affecting sales of assets, while proposed changes to IHT are causing uncertainty for families.

So – do you unpick everything and change your plans, or do you leave your plans as they are and hope that the situation may change again in the future?

In this issue, we’ll look at the changes to CGT and BADR, assess the impact and suggest some courses of action you might consider. We’ll also look in-depth at ISAs as a tax-efficient tool. In the next issue, we’ll be looking at pensions.

Changes to Capital Gains Tax (CGT) and what to do about them

CGT – the tax you pay if you sell an asset that’s gained in value – was targeted in the Budget.

The lower rate of CGT has risen from 10% to 18% for basic rate taxpayers. And for higher and additional taxpayers, CGT has increased from 20% to 24%, which came into immediate effect on 30th October 2024.

The rates on selling additional property didn’t change. So if you were planning to sell an asset in the short term or live off the proceeds of a sale as part of your retirement income plan, it’s time to think about what your options are.

What you could do:

  • Reconsider your timing. Do you need to sell all the asset at once? If you spread the sale over several tax years, you won’t pay CGT as long as you stay within your CGT annual exemption, which is currently £3,000 for the 2024/25 tax year.
  • If you’ve got to sell, always ensure you use your full £3,000 CGT annual exemption. You can’t carry forward the allowance, but you can offset losses made in the current year and previous years against a gain. You need to declare all losses to HMRC on your tax return within four years after the end of the tax year in which you sold an asset.
  • Gift some of the asset to your spouse or civil partner. There’s no CGT to pay on the transfer. When they sell, they’ll have their own CGT £3,000 exemption (any transfer must be on an outright and unconditional basis).
  • If you need to sell, look at reinvesting your gain in tax-friendly places such as ISAs, JISAs or pensions. More on these later!
  • Talking to your adviser and looking at all your assets helps you map out a tax-efficient solution.

Navigating the changes for Business Asset Disposal Relief (BADR)

CGT can be a particularly prickly thorn in the side of business owners, as your company is obviously a major asset. Here are some of the main things to be aware of.

A trading business will currently qualify for 100% business relief, which means it’s broadly exempt from IHT. So, if you were to die when you held your business and it’s passed on as part of your estate, it wouldn’t be subject to IHT, assuming you meet all the requirements.

However, the rules are changing. From 6th April 2026, the current 100% rate of agricultural and business relief will only apply for the first £1 million of combined agricultural and business property, reducing to 50% thereafter.

What’s more, if you’re a sole trader or business partner and you’ve owned the business for at least two years, you may qualify for BADR, which used to be known as Entrepreneurs’ Relief. But change is also on the horizon for BADR…

If you sell your business during your lifetime, you need to consider a few areas:

  • The budget brought in changes for BADR. The current 10% rate on the first £1m of qualifying disposals will increase to 14% in April 2025 and again to 18% in April 2026.
  • On disposal, you may have brought a large amount of capital into your personal estate that wasn’t there before, and this could be liable for IHT when you die.
  • You’re likely to have been drawing a healthy income from your business, so you need to think about how you’ll replace that in an IHT-efficient way that also gives you security over a long period of time, to ensure you don’t run out of money.

In many cases, trusts are often a good solution, as they protect your capital from IHT by removing it from your estate, while certain trusts allow you to draw an income. It’s also worth using your annual gifting allowance: you can give up to £3,000 per year, which will be exempt from your estate.

Don’t forget your pension. As well as the tax advantages, there’s the fact that it’s your money and not the company’s – so if anything happens to your business, your pension pot can still be passed on separately. This will be covered in more detail the next issue of Business Matters.

Turning back to CGT, if you gift your stake in your business to your children or another family member, they’ll inherit the base cost if you use giftholder relief. That allows you to move shares around the family without having to worry too much about CGT, as you’re effectively deferring the liability.

As well as business exits, if you’d like advice on mergers and acquisitions, at Wellesley we have access to experts in M&As and commercial finance, so please reach out to us.

Finding the right ISA balance

While not a target of the Autumn Budget, ISAs remain an evergreen tool for smart tax planning. But although ‘max out your ISAs’ is the tax year-end mantra that’s all too familiar, the phrase needs a little refining.

The lowdown…

ISAs are a great way of making your money work harder for you. Everything you earn from it is currently free of Income Tax and Capital Gains Tax, making it extremely tax efficient. ISAs are also a flexible option if you want to start investing in stocks and shares. You can’t carry forward any ISA allowance you don’t use in a single tax year – so make sure you use as much of this year’s £20,000 allowance as you can.

The best balance for you…

While it’s key to put as much into your ISAs as you feel comfortable with ahead of 5 April, it’s just as important to make sure that what you do hold is still giving you real value for money – i.e. earning their keep!

Even with higher interest rates, high inflation means that if you keep your savings in a Cash ISA, the money could lose its value in real terms. If you’re able to invest in a Stocks & Shares ISA over the long term (we always recommend that this should be at least five to ten years), it has the potential to beat inflation over time, despite the short-term ups and downs of the stock markets.

When it comes to CGT…

CGT kicks in when ‘gains’ aren’t in an ISA wrapper. If you need to sell gains up to the CGT annual allowance, but you’re not ready to sell the whole investment, you might have heard the phrase ‘Bed and ISA’. This means selling up some investments and buying them back within a tax-efficient ISA wrapper. ‘Bed and ISAs’ are like ‘double-deals’, allowing you to sell existing investments and use the proceeds to open or top up an ISA account. You can then buy the same investments back within the ISA wrapper, choose other investments or simply keep the cash in your ISA.

This is a win-win, as it means you can use up your ISA allowance and protect yourself from CGT on future gains.

Your trusted guide to tax year-end

Whether you’re a saver and investor, planning to leave a legacy – or both – financial advice can prove invaluable in exploring your options post-Budget and guiding your next moves. You may have more options and opportunities than you think.

We can help you optimise any money coming into your business and make decisions for the future of your business and your personal finances in the years ahead. With the right advice, it’s possible to maximise tax efficiency while continuing to focus on the everyday running of your business.

Smart money moves aren’t about once-a-year decisions, however. Having expert financial advice or guidance you can turn to at any point helps you make positive, informed choices year-round.

Here at Wellesley, we incorporate your tax situation into a broader, long-term financial plan – ensuring that, in spite of the current challenges, you still have the best chance of keeping momentum and moving your business in the right direction in 2025…and beyond!

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

The value of an ISA with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.

An investment in a Stocks & Shares ISA will not provide the same security of capital associated with a Cash ISA.

The favourable tax treatment of ISAs may not be maintained in the future and is subject to changes in legislation.

Please note that St. James’s Place does not offer Cash ISAs.