Capital gains was one of the areas of taxation that everyone expected would increase. There were a range of rumours circulating that CGT rates could be increased to achieve parity with income tax. Rates have increased, but not as much as some has anticipated and for property owners, things really could have been a lot worse.
This article highlights the increases in CGT – note there are a number of different dates from which different increases apply.
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Changes to main rates of CGT
With effect from 30 October 2024, the main rates of capital gains tax (CGT) for gains on assets other than residential property, were increased to 18% for basic rate taxpayers and 24% for higher rate taxpayers. This was an increase from 10% for basic rate taxpayers and 20% for higher rate taxpayers. This change re-aligns the main CGT rates with the existing CGT rates charged on residential property gains.
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No changes to CGT on property gains
For once, second property owners and landlords can breathe a sigh of relief. Rates of CGT for residential property gains remain at their previous levels of 18% and 24%. Interestingly, Rachel Reeves chose not to reinstate the previous 28% rate for property gains made by higher rate taxpayers.
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Changes to CGT for trustees
For trustees and personal representatives, the main CGT rate has been increased from 20% to 24%, also effective from 30 October. For shareholders, the increased main rates apply unless they qualify for other tax relief.
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Changes to CGT for business owners (BADR)
The chancellor chose to retain business asset disposal relief (BADR)) with some tweaks to rates. The current 10% rate charged on qualifying lifetime gains of up to £1m remains at this level until 5 April 2025. With effect from 6 April 2026 the rate will increase to 14% and then further increase to 18% from 6 April 2026.
For assets qualifying for BADR, the lifetime limit of £1,000,000 of gains qualifying for relief has not changed. BADR is available to a business owner or SME shareholder when they dispose of qualifying business assets or shares in a trading company in which they hold at least 5%. To be eligible for BADR the assets or shares must have been held for at least 2 years prior to the sale date, or be qualifying enterprise management incentive shares.
It has always been important to plan well ahead if you are considering a business exit. Now that the benefit of BADR is reducing over the next 2 years, forward tax planning is even more critical to ensure you can maximise the potential gains.
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Changes to CGT for investors
Tax relief policy for investors relief (IR) is broadly still aligned with that for entrepreneurs but there were some additional changes. The tax rates and timeframes for the change for IR and BADR remain the same – 10% then 14% and then 18% – but the lifetime limit for investors has been reduced. Starting with immediate effect, if the assets being invested in qualify for IR, the lifetime limit of £10,000,000 has been reduced to £1,000,000. This applies to qualifying investor gains on newly issued ordinary shares of an unlisted trading company subscribed for by individuals from 17 March 2016 and held for at least three years starting from 6 April 2016.
For CGT tax planning advice please contact us via partners@rjp.co.uk