The $TRUMP token rose from around $7 on 18 January to a high of nearly $75 a day later before falling back quite sharply.

Following the sudden increase in value of the tokens, there are concerns it could provide a springboard for other celebrities to launch their own cryptocurrencies. As we have highlighted previously, investors would be right to be wary, with plenty of examples of such investments going into the red soon after an initial boom in price.

It is not just the risk of a fast fall in value that UK investors should be mindful of. The temptation to jump into crypto transactions, in particular newly launched coins, can make the tracking and reporting of such investments difficult. However, any taxpayers seeking sympathy from HMRC are likely to be given short shrift should they claim difficulty in assessing their tax position.

HMRC’s view is likely to be that if a taxpayer chooses to invest in cryptocurrencies, then they are doing so in the knowledge that this can be a complex area, and they should be taking reasonable steps to make sure any associated tax liability is declared and paid.

Taking its cue from the government, we could see HMRC take an even firmer stance with taxpayers as they seek to recover more funds for the Treasury. The current 2024/25 tax year will be the first in which taxpayers have to declare crypto disposals separately on their tax returns and many more taxpayers will be required to report their crypto transactions to HMRC for the current tax year.

Most cryptocurrency transactions undertaken by UK taxpayers are subject to capital gains tax (CGT), rather than income tax. In the past, the majority of UK individuals investing into cryptocurrencies will not have had to declare their transactions to HMRC provided any capital gains were lower than the CGT annual exemption.

The CGT annual exemption has fallen dramatically following changes announced in 2022, from £12,300 per year for individuals to just £3,000. With the Financial Conduct Authority estimating that 12% of the UK’s adult population now own some form of cryptocurrency, we could see a surge in individuals having to report and pay CGT.

That could mean more individuals registering for self-assessment, placing a heavier burden on HMRC resources for relatively low levels of tax. There is however a different route that some may choose to explore, using HMRC’s ‘real time’ CGT service, but advisers cannot use this service. Gains made in the current tax year will need to be reported by 31 December 2025 and the associated tax must be paid by 31 January 2026.

The days of crypto investors relying on the safety net of the CGT annual exemption are largely over and many will be met with a hard landing if they do not keep detailed records as they go along.

Many will be aware of the general rule that someone’s exposure to inheritance tax (IHT) can be reduced if gifts are made during their lifetime. Typically, such gifts will be fully exempt if the gift is survived by seven years and the potential IHT on the gift starts to reduce once three years have passed.

On the surface, it can appear a straightforward decision but for many parents, deciding how much to give away and when can be a challenging one that many wrestle with. Some parents can be worried about giving away too much, too soon to their children and potentially diluting some of their drive and ambition. Others may harbour concerns about future relationships their children may have and the impact a break-up might have on any assets or funds gifted. In other cases, it may simply be considered that the child is too young to receive a gift directly.

An answer to such concerns can be to look at making a gift to a family trust instead. The family trust is arguably an ironic title as it can allow someone to make gifts indirectly to a family member who they do not necessarily trust to receive the gift themselves yet. The person making the gift, known as a settlor, can retain control of the asset or funds gifted to the trust during their lifetime but will usually be prevented from benefiting from it.

Despite having a clear role to play in passing assets from one generation of a family to another, the number of trusts submitting tax returns has substantially declined over the last 20 years or so. The latest statistics from HMRC indicate that from 2004 to 2023 the number of trusts in self-assessment fell from 225,000 to 147,000. This is in part due to significant changes to the taxation of trusts that were introduced by Gordon Brown as chancellor in 2006.

However, one of the unintended consequences of Rachel Reeves’ first budget is that there may be a resurgence in the establishment of new family trusts. The proposed changes to agricultural relief and business relief mean that an individual will only receive 100% IHT relief on the first £1m of qualifying assets held at death. An individual could however effectively double this allowance if they establish a family trust as that can also benefit from its own £1m allowance. However, where trusts are created by the same settlor on or after 30 October 2024, this £1m allowance will be divided between those trusts.

As a result, each individual in the family business may think about establishing a trust, with a view to protecting as much of the value from IHT as possible. Similarly, those with pension pots that will be brought into the IHT net may start thinking about giving away other assets using a trust, or even funding the trust with surplus income paid from the pension.

Establishing a family trust is clearly not something that should be rushed into. There are complicated tax rules to consider and those taking on the role of a trustee need to understand what their responsibilities are. What this does highlight is that, rather than generating significant additional revenues for the Treasury, the proposed budget IHT relief changes could simply distort taxpayer behaviour. For those individuals and businesses impacted, important decisions around gifts and business ownership could end up being made for the wrong reasons.

At the moment, the majority of unused pension funds do not form part of an individual’s estate for IHT purposes. In the future, the proposed changes will mean that individuals may not be able to pass on these unused pension funds on death without an IHT charge. Instead, the pension scheme administrator will need to make a report to HMRC on the death of a member of any unused pension and pay IHT due from the pension pot.

The precise rules as to how this will work remain subject to confirmation. A consultation was published on 30 October 2024 and will run for 12 weeks until 22 January 2025. One rationale behind the change was to remove taxpayers’ “incentive to use pensions as a tax-planning vehicle for wealth transfer after death”.

However, there are some families who may find the additional tax burden weighs more heavily on them than others due to how the rules are expected to operate.

In some instances, the addition of a pension fund to someone’s IHT estate will result in them losing the residence nil rate band (RNRB). This is the tax-free amount of up to £175,000 that can help reduce someone’s IHT liability in respect of residential property they have owned. If someone’s estate for IHT purposes exceeds £2m, the RNRB starts to be reduced. It is reduced by £1 for every £2 over £2m, meaning someone with an estate of £2.35m will have no RNRB available to them.

Based on the expected operation of the new pension rules, it is possible that someone with other assets of £2m and a pension pot of £350,000 could find a high effective IHT rate applies to the pension and overall estate due to the loss of the RNRB of up to 60%.

If the pension is then withdrawn as income, there could be a further layer of tax applied to the pension funds. An additional rate income taxpayer resident in England, Wales or Northern Ireland would incur tax at a rate of 45% on such funds, whilst a Scottish resident would incur a rate of up to 48%.

The net result is that a Scottish beneficiary of the estate in these circumstances may only receive as little as £29,906 additional cash from the £350,000 pension pot. That works out as an effective overall tax rate on the pension pot of 91.46%. An English, Welsh or Northern Irish beneficiary of the same pot could have a net receipt as low as £36,787, representing an 89.49% overall tax rate.

The new pension IHT rules are undoubtedly going to make matters more complicated from an administrative perspective and the calculation of IHT liabilities is set to become more complex. The new rules highlight what some might consider to be design flaws in the tax system as some may feel the hit of a tax blow to be much heavier than others.

The rationale is that this might limit the loss of any tax revenues arising from a potential outflow of wealthy individuals and entrepreneurs from the UK to countries perceived to have more favourable tax regimes.

Currently, individuals deciding to do so do not suffer any tax charge for simply leaving the UK. However, a precedent for such a charge already exists. Limited companies already suffer a corporation tax charge on unrealised gains, based on an uplift to market values of relevant assets, when they become non-resident.

A similar charge applies when a trust becomes non-UK resident, based on a deemed disposal and reacquisition of chargeable assets at market values. The latter charge was the subject of a European Court of Justice case on the grounds the legislation unjustifiably restricted freedom of establishment; as a result, the legislation was subsequently amended to include a deferral provision, but the basic exit charge still remains.

With such precedents already in place, there is an argument for an exit charge to apply to individuals also. Many other countries in the G7 also already impose such a tax charge on leaving, such as Canada and Australia. Why then has the UK not already taken a similar path?

Put simply, one reason is that there is no need to lock the UK’s exit door if there are not many people using it. There are undoubtedly some high-net-worth individuals who have emigrated and not paid CGT on a subsequent disposal of assets. However, the historic view of the government is likely to have been that the numbers of individuals deciding to emigrate was not so large as to justify the complexities a CGT exit charge might bring.

In our experience, there has been a spike in interest in emigration planning from the UK, with concerns about CGT rates undoubtedly acting as a catalyst, but often not the only reason. Nevertheless, if there is a relatively modest increase in the main rate of 20% to, say, 24% then it is hardly likely we will see an exodus of entrepreneurs in response.

Part of the rationale for an exit charge appears to be that it would help secure tax revenues if CGT rates were increased in line with income tax rates. That presents a contrast to countries like Canada and Australia which offer significant discounts on CGT rates against income tax rates.

An exit charge with a low barrier, in the form of a lower or discounted CGT rate then, may have a very different behavioural response to one with a high barrier. We shall be able to see how this plays out internationally with Norway’s anticipated exit charge changes which will seek to apply a rate close to 38%.

Whilst an exit charge, along with a high CGT rate, might act as a deterrent to people emigrating, that does not necessarily mean that CGT receipts would increase as a result. We have written previously about how taxpayers might respond to a high CGT rate. Pursuing substantial additional CGT receipts with an exit charge may be like chasing a mirage.

A whole host of other CGT rules may need to be changed alongside it to make it fair and workable. The danger is that we end up with a lot of additional complexity, with little in the way of additional tax receipts to show for it. What is also unclear is whether the possibility of a future tax charge will also deter individuals from settling in the UK in the first place.

Ultimately, the preference for now is likely to be to stick with the UK’s currently revolving door, rather than to apply padlocks to it. The experiments of other countries like Norway may be closely observed

There are breadcrumbs we can follow though, there appears to be a laser focus that any tax announcements have to improve the Treasury’s finances. The theme of pragmatism over ideology is also a recurring one in recent weeks and there will be limited appetite for a misstep in No 10. That all points to tax policy changes which are simple, tried and tested, and difficult to avoid.

Those expecting the Chancellor to use her first Budget as a platform for a dramatic reshaping of tax rules are likely to be sorely disappointed. The Chancellor will not see this as a time for grandstanding and etching herself into the political annals as a great tax reformer. There is plenty of time for that. This is about the cold-hearted business of balancing the books.

As a result of the manifesto commitments, there appear to be only three routes for the Chancellor to pursue in raising tax revenues further and Rachel Reeves will need to draw on the SAS. Not the special forces, although the Chancellor might welcome their support in defending the difficult decisions expected to be announced, the SAS in this case is a combination of stealth taxes, additional taxes and smaller taxes.

More taxpayers are now familiar with the concept of stealth taxes, with many having felt the effects of fiscal drag first-hand following the lowering and freezing of various tax thresholds and allowances by the previous government. Given the self-imposed restraints placed on the Chancellor, there will be a strong temptation to raise taxes by the backdoor in a way that is not widely understood by the general public, but arguably does not breach a manifesto commitment.

Employers’ National Insurance contributions (NICs) changes may effectively reverse her predecessor’s employee and self-employed NICs giveaways that Rachel Reeves criticised at the time. The economic burden of such a rise will undoubtedly fall on workers but semantics matter in politics.

The Chancellor will be reluctant to copy the Conservative’s playbook on fiscal drag and prolong the freezing of thresholds but could feel forced to. The benefit of doing so may not be as great however, and therefore not worth the political cost, given the lower inflationary environment that we will hopefully remain in for the rest of the parliament.

Turning then to the idea of additional taxes, the Chancellor has already ruled out a new wealth tax, and practicalities and political risk may rule out other potential new taxes at this stage. The announcement of the election earlier this year took many by surprise and it is difficult to see how the Chancellor would have had the time to fully work through the design of a brand new tax. A new tax also comes with significant political risk if it were introduced without consultation, and the new government will be keen to avoid any measures that could backfire.

That then leaves us with the final option which has dominated the conversation over the last few months, namely, which smaller taxes are set for a makeover. We’ll undoubtedly see changes to capital gains tax and perhaps some smaller changes to inheritance tax. If you are guided by tax revenues, rather than fairness, then the options appear to be quite limited.

The Chancellor is likely to be keen to stay on the path more well-trodden in this Budget rather than make lots of changes to smaller taxes that have questionable outcomes. The top 1% of society will certainly pick up a part of the tab but the uncomfortable truth for the Chancellor is that the Britain she is building comes with a bill that we all have to share.