The October budget: What the Capital Gains Tax and Inheritance Tax outlook means for your business

The UK is once more in the increasingly frequent process of trying to anticipate what tax changes an incoming Prime Minister and Chancellor might make during their first autumn fiscal event. Following the appointments of Andy Burnham as PM and John Healey as Chancellor, this administration’s first Budget is set for 28 October.

The question being asked is roughly the same as it was on the other 5 occasions in the last decade: how to raise much-needed tax revenue while encouraging economic growth and honouring promises not to raise the ‘big 3′ taxes (income tax, VAT and corporation tax).

The difficulty in answering this question means that the focus keeps coming back to the ‘smaller’ taxes, particularly capital gains tax (CGT) and inheritance tax (IHT).

Capital gains tax: Where do rates go from here?

Despite many changes over the last decade CGT is often seen as ‘too low’ because taxpayers whose earned income is subject to a 47% rate can pay CGT at rates as low as 18%. This means that closing the gap between income tax and CGT rates could enjoy widespread political support and may be one of only a few options available to try and raise tax revenues without breaking other commitments.

The Financial Times reported this week (£) that the Chancellor has responded to senior Labour figures’ discussion of aligning income tax and CGT rates by ruling out equalisation. However, there is still scope for significant increases to CGT rates without reaching the same level as income tax.

Large increases in rates could well be accompanied by new reliefs to reflect the impact of inflation on capital returns: the UK system has previously used indexation calculations and defined-rate percentage tapers at different times. Broadly, this would benefit those selling assets that stand at a cash gain but not a real-terms gain, but would be likely to impose significantly higher liabilities on sales of assets with low base costs and high gains.

One of the most common examples of a transaction likely to be subject to more tax following a change like this would be a first sale of a business by its founders. The current uncertainty will be a strong incentive to complete any business sales that are underway before the Budget.

Inheritance tax: The change that has already happened

While thinking about what might happen, it’s important not to lose sight of what has already happened, with the April 2026 changes to IHT continuing to have a big impact on the tax risk of family businesses. Although much of the focus was on the possible impact on ‘family farms’ the restriction of succession reliefs may have far more widespread consequences for family businesses.

To recap: before April, many businesses were completely exempt from IHT regardless of their value. Since April, only the first £2.5m of value (£5m between a couple) is exempt with the rest taxable at 20% on death.

For family businesses with values well above £5m, a sudden IHT bill could be crippling (especially if the cash to pay the tax has to be drawn from the company, creating further income tax cost). Often the only option would be a sale of the business to fund the IHT.

As a minimum, it’s essential to keep IHT exposure under review and make sure that there is sufficient life insurance or cash to cover an unexpected liability.

This also reverses the ’normal’ advice of recent years, which was often to hold shares of family businesses until death to obtain a CGT base cost uplift. Now that an IHT-free business succession can’t be relied on, gifting shares to the next generation is likely to be the most tax-efficient plan for keeping the business in the family.

Act now…don’t let speculation obscure what is already law

The forthcoming Budget is a reminder to act quickly in any ongoing transactions where tax certainty is important; but it’s vital to make sure that speculation about future changes doesn’t distract from planning to mitigate the effect of changes that have already happened.

How K3 Tax Advisory can help

K3 Tax Advisory advises business owners, entrepreneurs and families across the UK on CGT planning, IHT structuring, business succession and transactional tax. Whether you are approaching a business sale, reviewing your estate plan, or simply want to understand how the Budget might affect your position, our team is ready to help.

• CGT planning – We model the tax cost of a sale at current and potential future rates and advise on timing and structure
• IHT structuring – We review family business exposure under the post-April 2026 rules and identify mitigation options
• Business succession – We design tax-efficient succession plans for family businesses, including lifetime gifting strategies
• Pre-Budget advice – We help clients act decisively when the tax landscape is moving quickly

If you would like to discuss your position before 28 October, please contact K3 Tax Advisory.