Business owners locked in “race against time” against Autumn Budget tax hikes, says tax expert

Businesses and investors show ‘changed behaviour’ ahead of the UK Government’s Autumn Budget on 30 October

With the UK Government’s Autumn Budget fast approaching, a Midlands-based tax expert says that many business owners and investors are racing to finalise transactions under the current regime before potential tax hikes take effect.

From probable Capital Gains Tax (CGT) and employers’ National Insurance increases to potential changes in Business Asset Disposal Relief (BADR) and tighter rules for carried interest, the forecasted reforms are anticipated to have wide-ranging impacts on how investments, businesses, and personal wealth will be taxed after 30 October.

Representing over 12,000 businesses and individuals across the Midlands and North London, Duncan & Toplis is seeing an increase in business owners looking to shore up their interests now – under what could well be comparatively favourable conditions compared to the as yet unknown tax reforms being announced later this month.

Graeme Hills, Director and Head of Tax at Duncan & Toplis, captures the mood:

“We’ve seen plenty of transactions ahead of the budget, as individuals try to crystallise tax events while there is still some certainty. For many, it’s a race against time.”

Graeme adds: “These possible tax reforms come at a critical juncture as the UK faces ongoing economic pressures, and businesses and individuals alike are bracing for changes that could alter how they approach investments, business sales, and long-term financial planning.”

Capital Gains Tax: a costly loss for investors and business owners?

One of the most widely speculated changes in the Autumn Budget is a possible increase in Capital Gains Tax (CGT) rates. Analysts suggest that the Chancellor may seek to align CGT rates with higher income tax bands, potentially increasing CGT rates to as much as 40% or even 45% for higher-rate taxpayers.

This shift would make it considerably more expensive for individuals selling investments, properties, or businesses. Currently, CGT is capped at 20% on most assets and 24% on residential property, offering a tax-efficient means for many to realise gains. Even if the expected CGT rate rise doesn’t come to pass, the anticipation of it has sparked a wave of pre-budget transactions as people look to lock in gains under the current rates.

Highlighting the pre-budget rush, Graeme adds: “We’re certainly seeing a spike of transactions ahead of the budget. This ranges from those who were doing transactions anyway now wishing to accelerate before the Budget while there is some certainty, all the way up to those entering transactions ahead of the budget to crystallise tax events in what many think will be a favourable regime.

“We have a lot of transactional work on, and have been that way for a while as we have been trying to get HMRC clearances through before Budget day (they have 30 days to respond, so already likely too late if this would be needed). Conversely, we have had a few clients who have decided against the angst of trying to get something through in short order and have postponed further planning discussions until after the budget when there is more certainty on what the future holds. It has certainly been a behaviour-changer!”

Is Business Asset Disposal Relief (BADR) at risk?

Another area of concern is Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief. BADR currently allows qualifying business owners to pay a reduced CGT rate of 10% on gains up to £1 million, encouraging investment and business expansion.

However, reports indicate that BADR may either be reduced or scrapped altogether in an effort to raise revenue.

“Scrapping or reducing business reliefs would not only impact small business owners but also deter entrepreneurs from selling their businesses due to the higher tax burden they would face,” adds Graeme.

“Business groups have expressed concerns that abolishing or cutting BADR could stifle economic growth and reduce business innovation, especially among start-ups and SMEs that rely on the relief as part of their long-term exit strategies.”

Government is not ruling out a National Insurance (NI) rise for employers

This week, Chancellor, Rachel Reeves commented that Labour’s manifesto pledge not to increase NI for “working people” only applied to the employee element.

Currently, employers pay NI at a rate of 13.8% on all employee earnings above £175 per week and there is much speculation about whether this will rise in the Budget.

“The statements from Downing Street that this has not been ruled out make it highly likely that the employer element of NI will be increased in the Budget. This controversial move will not help business confidence and although, at this stage, it doesn’t increase the tax paid by employees, this could mean employers face a significant increase in costs – and unless there’s room to shoulder this in profit margins, these costs will need to be passed on somehow.”

Hedging your bets? Stricter taxation for private equity and hedge fund managers anticipated

The Autumn Budget is also expected to bring changes to the carried interest rules, potentially increasing tax liabilities for private equity and hedge fund managers. Currently, carried interest (the share of profits paid to investment managers)  is often treated as a capital gain, attracting CGT rather than income tax.

“It is anticipated that the government may tighten these rules, subjecting carried interest to income tax rates instead, which could rise as high as 45% for top earners,” notes Graeme. “This change could have a profound impact on the investment management sector, potentially reducing the attractiveness of the UK as a base for fund managers and prompting concerns over the competitiveness of the UK financial services industry.”

Inheritance Tax (IHT): targeting intergenerational wealth for HNWIs?

Inheritance tax (IHT) may also come under scrutiny in the Autumn Budget. Currently, estates over £325,000 are taxed at 40%, with an additional residence nil-rate band providing some relief for family homes. However, it’s speculated that the government may seek to reduce the available reliefs or introduce a higher IHT rate for larger estates.

“With rising property prices and static reliefs, more estates than ever before are subject to IHT, leading to calls for reform,” Graeme clarifies. “But if the government does move to increase IHT or bring more estates within its scope, it will likely spark controversy, especially among families hoping to pass on wealth to future generations without being hit with significant tax bills.”

What’s next?

The Autumn Budget is shaping up to be a pivotal moment for taxpayers across the UK. As speculation continues to swirl around potential tax hikes and reforms, individuals and businesses are urged to prepare for a potentially more stringent tax regime.

Financial experts are urging anyone considering significant financial decisions, such as selling a business, investment property, or portfolio, to seek professional advice as early as possible to mitigate any adverse effects from the upcoming changes.

“People are already feeling the pressure to act now rather than later,” adds Graeme Hills. “The level of uncertainty is driving more transactional activity, and for some, the race is on to finalise deals before the potential changes take effect.”

With the Autumn Budget fast approaching, the future of the UK’s tax regime remains unclear. What is certain, however, is that this year’s Budget could represent one of the most consequential shifts in recent memory for business owners, investors, and individuals alike.