Preparing for the Tax Tipping Point: CGT & Inheritance Reforms That Could Catch You Off Guard

From 2025 onwards, a wave of tax reforms affecting capital gains and estates is set to reshape the way assets are sold, transferred, and inherited. While some changes are already confirmed for 2025/26, others loom in 2026/27 and beyond — and their impact will be significant.

If you’re planning to sell a business, pass on wealth, or manage a large estate, it’s time to rethink your strategy.

Here’s what’s changing and why it matters.

Capital Gains Tax (CGT): A Quiet but Costly Shift

The headline CGT rates may not have changed for 2025/26, but previous reforms now apply, and more are coming.

What’s Staying the Same (for Now)

• Basic rate taxpayers pay 18% on residential property gains and 10% on general assets
• Higher rate taxpayers pay 24% on residential property gains and 20% on general assets
• The Annual Exempt Amount remains at £3,000 — down from £12,300 just a few years ago
• You must report CGT if your proceeds exceed £50,000, even if gains are below the exemption

What Changed Mid-Year in 2024/25

• From 30 October 2024, rates rose for general assets:

1. 1. Basic rate: 10% → 18%

   2. Higher rate: 20% → 24%

This split-year rate change will make 2024/25 CGT returns more complex, especially for landlords and those selling large shareholdings.

Business Asset Disposal Relief (BADR) & Investors’ Relief (IR): More Tax on Business Sales

These two reliefs — previously allowing gains to be taxed at 10% — are now facing restrictions:

• From 2025/26, the tax rate on BADR rises to 14%
• From 2026/27, it rises again to 18%
• The lifetime cap for both BADR and IR is now just £1 million (down from £10 million for IR)

What This Means:

If you’re planning to exit your business, do it sooner rather than later. Waiting could cost you £80,000 more tax on a £1 million gain from 2023 to 2026.

Tip: Be cautious with pre-sale contracts — anti-forestalling rules may stop you from locking in earlier rates if completion is delayed.

Carried Interest: More Tax for Fund Managers

If you work in private equity or venture capital, carried interest receipts will now:

• Be taxed at a flat 32% CGT rate from 2025/26
• Then be fully brought into income tax from 2026/27, with a 72.5% multiplier used in some cases

This represents a significant loss of tax efficiency and should prompt early planning for affected individuals.

Inheritance Tax (IHT): Freezes and Major Reductions in Reliefs

Nil Rate Band Still Frozen — But More People Affected

• The main nil rate band remains at £325,000
• The residential enhancement for passing property to children or grandchildren is £175,000
• These limits are frozen until April 2030, pushing more estates over the IHT threshold each year due to rising house prices

A married couple can still potentially pass on £1 million tax-free, but only with the right planning.

Big IHT Changes Coming from 6 April 2026

1. Restriction of Agricultural Property Relief (APR) and Business Property Relief (BPR)

• 100% relief will apply only to the first £1 million of qualifying assets
• Above £1 million, the relief drops to 50%
• This applies per estate, not per asset type

This will drastically increase IHT liabilities on land, farms, trading businesses, and AIM-listed shares

Example:

A farming estate worth £3 million currently benefits from 100% relief on all qualifying assets.

From 2026:

• Only the first £1 million is relieved at 100%
• The remaining £2 million receives 50% relief
• Result: £1 million of value becomes taxable, leading to a £400,000 IHT bill

2. Installment Relief Introduced

The government has announced that any extra IHT arising due to these changes can be paid over 10 years, interest-free — but it’s cold comfort for those suddenly facing hundreds of thousands in tax.

3. AIM Shares: Relief Cut in Half

AIM-listed shares have long been used in IHT mitigation planning due to their 100% relief after 2 years.

From 2026:

• This relief is cut to 50%, regardless of portfolio value
• It makes AIM investing less attractive for IHT planning

4. Pension Funds to Be Taxable From 2027/28

Currently, unused pension pots are exempt from IHT on death. This generous treatment ends from April 2027:

• Pension death benefits and uncrystallised funds will be taxed as part of the estate
• This affects anyone using pensions as an IHT shelter

If you’ve been relying on your pension to pass wealth tax-free — now is the time to rethink that strategy.

What You Should Do Now

These changes affect:

Business owners planning to sell
Landowners and farmers with estates over £1 million
Families with large property portfolios
AIM investors using share reliefs
Professionals with large pension pots
Anyone expecting to leave an estate worth over £325,000

How Merranti Can Help

At Merranti Accounting, we help individuals and businesses across the UK prepare ahead of tax reform — not react after it’s too late.

We can help you:

• Structure your business sale to maximise BADR while rates are still favourable
• Reassess your IHT exposure in light of APR/BPR caps
• Review or restructure AIM portfolios and trusts
• Update your pension and estate plans for 2027
• Report and manage complex CGT scenarios with multi-year rate changes

Now is the time to act — not when these taxes are already due.