SQL Server reordena el número de secuencia cuando los registros se mueven hacia arriba o hacia abajo

Debe conocer la posición anterior antes de poder mover elementos. Y su lógica debe ser diferente dependiendo de si el elemento se movió hacia arriba o hacia abajo. El esquema general del proceso (no probado) es el siguiente:

DECLARE @Id INT = 1100000004; -- this id
DECLARE @NewPosition INT = 1; -- needs to have this position

WITH RowToMove AS (
    -- using cte instead of variables
    SELECT Plan_Id, sequence_no AS OldPosition
    FROM planRecords
    WHERE Id = @Id
), RowsToUpdate AS (
    -- columns used inside set and where clause of the update statement
    SELECT Id, sequence_no, OldPosition
    FROM planRecords
    CROSS JOIN RowToMove
    -- select rows that belong to same category and position between old and new
    WHERE planRecords.Plan_Id = RowToMove.Plan_Id AND sequence_no BETWEEN 
        CASE WHEN OldPosition < @NewPosition THEN OldPosition ELSE @NewPosition END AND
        CASE WHEN OldPosition > @NewPosition THEN OldPosition ELSE @NewPosition END
)
UPDATE RowsToUpdate SET sequence_no = CASE
    WHEN Id = @Id THEN @NewPosition -- this is the row we are moving
    WHEN OldPosition < @NewPosition THEN sequence_no - 1 -- row was moved down, move other rows up
    WHEN OldPosition > @NewPosition THEN sequence_no + 1 -- row was moved up, move other rows down
END;

Demostración en DBFiddle usando variables , utilizando CTE