Capital taxes

Capital Gains Tax

Capital Gains Tax rates

The Capital Gains Tax rates remain unchanged for 2026/27.

Capital Gains Tax annual exemption

The annual exempt amount will remain at £3,000 for 2026/27. 

Employee Ownership Trusts

The current relief available for qualifying disposals by business owners selling their shares to Employee Ownership Trusts (EOTs) is a 100% exemption of any gain. From 26 November 2025, the relief only exempts 50% of the gain. Business Asset Disposal Relief and Investors' Relief will not be available where the 50% exemption has been claimed. The remaining 50% of the gain on disposal will not form part of the disposer's chargeable gain. Instead, 50% of the gain will be held over and deducted from the trustees' acquisition cost. This will mean that it will come into charge on any subsequent disposal or deemed disposal of the shares by the trustees of the EOT.

Incorporation Relief

The government will introduce a requirement for taxpayers to actively claim incorporation relief for transfers of a business to a company on or after 6 April 2026. The relief previously applied automatically.

Business Asset Disposal Relief

The rate applying for individuals claiming Business Asset Disposal Relief and Investors' Relief will increase to 18% for disposals made on or after 6 April 2026.

Carried interest rates and reform

From April 2026, all carried interest will be taxed within the income tax framework. A multiplier of 72.5% will be applied to any qualifying interest brought within the charge.

Inheritance Tax

Inheritance Tax nil rate bands

The nil rate band has been frozen at £325,000 since 2009 and will continue to be frozen until 5 April 2031. An additional nil rate band, called the 'residence nil rate band' is also frozen until 5 April 2031 at the current £175,000 level, as is the residence nil rate band taper starting at £2 million.

Unused pension funds and death benefits

The government will bring unused pension funds and death benefits payable from a pension into a person's estate for Inheritance Tax (IHT) purposes from 6 April 2027.

All death in service benefits payable from registered pension schemes will be excluded from the value of an individual's estate for IHT purposes.

The personal representatives will be responsible for paying any IHT due on unused pension funds and death benefits in a person's estate. However, pension beneficiaries of registered pension schemes will be able to request the pension scheme administrator pay their IHT liability directly to HMRC in specific circumstances. They may also direct scheme administrators to withhold 50% of taxable benefits for up to 15 months.

Comment

The rules may potentially have significant effects for those with pension funds.

For example, John made contributions to his private pension scheme. At the date of his death, aged 90, the pension fund is valued at £400,000. The remainder of his estate is valued at £1,000,000.

Currently, the IHT bill is £270,000. This will rise to £430,000 under the new rules.

Agricultural Property Relief & Business Property Relief

From 6 April 2026, agricultural and business property will continue to benefit from the 100% IHT relief up to a limit of £2.5 million. The limit is a combined limit for both agricultural and business property. Such property in excess of the limit will benefit from a 50% relief.

The £2.5 million limit applies per person and is refreshed every seven years. From 6 April 2026, this allowance will be transferable between married couples or civil partners. This will include where the first death was before 6 April 2026.

There may be a further £2.5 million allowance for trusts in certain situations but the rules are complex.

The £2.5 million limits for both individuals and trusts will be frozen until 6 April 2031.

Comment

There has been a great deal of press coverage reflecting the unhappiness of farmers with these changes. However, the changes are much broader and potentially affect the owners of many SMEs in the UK. Early IHT planning becomes critical under the new rules.

The transferability of the allowance between spouses/civil partners seems to be recognition of taxpayer concerns, as does the increase in the limit from the £1 million previously proposed to £2.5 million. However, there will still be large numbers of business owners affected by the changes.