What the Autumn Budget 2024 means for UK trusts
Released On 12th Nov 2024
There is no mistake that the recent budget will have a significant effect on trusts. We have probably not seen such drastic changes since the 2006 Budget which overhauled the relevant property regime introducing the inheritance tax changes to interest in possession of settled property.
This article covers the most recent changes announced and what they mean to trustees of discretionary and interest in possession trusts.
Inheritance Tax
From April 2026 there are restrictions on Business Property and Agricultural Property Relief.
Currently, trust assets which qualify for 100% relief, escape any inheritance tax (IHT) charge on the trust's ten-year charge and on any proportionate charges (which arise when capital distributions are made from the trust).
From 6 April 2026, each existing trust in place on budget day (30th October 2024) will have its own £1m allowance. This means that assets qualifying for 100% BPR or APR, will qualify for relief up to £1m. Any value in excess of £1m will only qualify for 50% relief. Trusts which have previously escaped IHT charges may now find themselves with an IHT charge on the first ten-year charge following 6 April 2026 and any exit charges thereafter. As a reminder, the tax rate at a ten-year charge is a maximum of 6%.
There will be a technical consultation by the government in early 2025 on the proposed changes.
Where the existing 100% relief is applied, this relief will still be applied in full for assets within the £1m allowance, except for shares designated as not listed on the markets of recognised stock exchanges such as AIM, where the relief will be reduced to 50% and will not be affected by the new allowance. This change also comes into effect from April 2026.
With the planned changes not coming in until April 2026, there is a window of opportunity to review any existing trusts to consider the options available. For example, it may be an opportune time to distribute assets to beneficiaries prior to the trust's next ten-year charge, consider what the tax charges might be and if trustees have liquid assets to meet them.
IHT on some assets qualify for the instalment option and may even be interest-free.
For new trusts being set up post Budget Day, the government intends to introduce rules to ensure that the allowance is divided between trusts where a settlor sets up multiple trusts on or after 30 October 2024.
For life interest trusts where the assets fall within the life tenant’s estate (and not within the relevant property regime), there will also be a restriction of BPR/APR. In the same way that there is £1m allowance for trustees, the same applies to an individual. Any IHT due arising on the death of the life tenant is borne by the trustees and the assets held so consideration will need to be given as to how this tax liability is funded.
Capital Gains Tax
From 30th October 2024, the rate of capital gains tax for trustees will increase from 20% to 24%. Disposals of residential property will remain at 24%.
Business asset disposal relief, which is available to trustees on the sale of a business where a qualifying beneficiary who also holds a qualifying interest in their own right (or disposal of an asset in a business carried on by a beneficiary) will increase from 10% to 14% from 6th April 2025 and from 14% to 18% for disposals made on or after 6 April 2026.
Trustees should carefully consider their position regarding CGT. These increases follow the reduction in the annual exemption.
Income Tax
There have been no changes to the rates of income tax for trustees.
Stamp Duty Land Tax
Trustees of relevant property trusts are subject to the higher rates of stamp duty land tax on the purchase of residential property and therefore from 31st October 2024, the higher rate will increase by 2% resulting in an increase in the rate from 3% to 5% on purchases up to the value of £250k.
