Background
Following last Wednesday’s Budget, this week in Muras Matters we will look in more detail at the changes announced to Capital Gains Tax (CGT) as some of the changes will have an immediate impact on tax rates and allowances.
As part of last week’s Budget, the Chancellor, Rachel Reeves, announced that with effect from 30 October 2024, the main rates of CGT will be increased to 18% and 24%. The 10% rate of CGT for disposals attracting business asset disposal relief or investors’ relief will increase to 14% (from April 2025) and to 18% (from April 2026).
This represents the first time CGT rates have been significantly altered since 2016, when the top rate was slashed from 28% to 20%.
Detail
With immediate effect from Budget day, for disposals on or after 30 October 2024, the lower rate of CGT has increased from 10% to 18%, and the higher rate has increased from 20% to 24%. Whilst this is the first significant increase in CGT for many years, the higher rate of 24% is still relatively competitive compared to other developed countries.
Under the current rules, business asset disposal relief (BADR) is a 10% tax charge on the first £1million of all gains on qualifying assets when a business is sold as long as it has been owned for a minimum of two years. There had been some expectations the relief would be completely abolished as it is has been chipped away at by successive Chancellors in recent years.
Instead it was announced that the rate for both BADR and investors’ relief will increase over time to match the new lower CGT rate. The rate for both reliefs will be increased to 14% from 6 April 2025, and then to 18% from 6 April 2026.
The government has said that the staggered approach to the move away from 10% relief will ‘allow business owners time to adjust to the changes’.
The lifetime allowance for BADR will remain unchanged at £1million, but it should be noted that the CGT rate on any gains in excess of this £1million has increased for disposals on or after 30 October 2024 from 20% to 24%.
For investors’ relief, the lifetime allowance has been reduced from £10m to £1m with effect from 30 October 2024.
Additionally, the Treasury has stated that ‘rules will also be introduced that apply to forestalling arrangements entered into in respect of unconditional but uncompleted contracts before 30 October 2024, and for Business Asset Disposal Relief and Investors’ Relief, where a contract is made from 30 October 2024 to 5 April 2026 and completed from 6 April 2025’.
The CGT annual exemption had already been reduced to £3,000 for individuals from 6 April 2024 (£1,500 for trustees) and will remain at that level until at least 5 April 2026. The annual exemption is broadly the amount of capital gains an individual can have before they start paying CGT. If an individual’s net gains are below the annual exemption, no CGT is payable. If they are above the annual exemption, gains in excess of that will be subject to CGT.
For gains on residential property, the lower and higher rates of CGT will remain unchanged at 18% and 24% respectively.
Other announcements in the Budget including the changes in Employers National Insurance, Stamp Duty and Inheritance Tax will be considered in Muras Matters over the coming weeks.
If you would like more information on any of the changes to capital gains tax, or how these changes may impact you, please speak to our Tax Director, Jenny Marks.
To see our other news items please visit our Muras Baker Jones – Blog.