Published: 07/11/2024 By Dean Clark
Following the recent Autumn Budget 2024, we wanted to share several key updates that may be relevant to your financial and tax planning specifically regarding Capital Gains Tax (CGT).The lower and higher rates of capital gains tax (CGT) were increased from 30 October 2024 which could lead to a mass sale of assets and a huge increase in tax receipts.
There are two principal rates for CGT, the lower rate of 10% (applicable to basic rate taxpayers) will rise to 18%, while the higher rate of 20% (applicable to higher rate taxpayers) will rise to 24%.
The above changes are a blow for investors, following previous adverse changes, which see the tax-free allowance reduced (to just £3,000 in the current tax year), and more and more people being pushed in to higher rates of CGT automatically as a result of income tax thresholds being frozen.
These new rates apply with immediate effect, representing a mid-year tax rise, which is highly unusual. A small positive is that the rates of CGT for residential property disposals of 18% and 24% will remain the same.
Business owners face a gradual reduction in capital gains tax breaks on business asset disposal relief (BADR), formerly Entrepreneur’s Relief. Under the current system, business asset disposal relief is a 10% tax charge on all gains on qualifying assets when a business is sold, as long as it has been owned for a minimum of two years. The relief remains limited to a lifetime allowance of £1m.
There had been some expectations the relief would be completely abolished in the Budget, however the Chancellor announced that the rate will increase to 14% from 6 April 2025, before increasing again the following year to 18%, from 6 April 2026.
The Government’s staggered approach to the move away from 10% relief may allow business owners time to adjust to the changes, and may also offer some tax planning opportunities for owners looking to exit their businesses soonest.
By way of a basic example, whilst the BADR rate remains at 10% until April 2025, and the higher rate of CGT increases immediately to 24%, people selling their business can save up to 14% CGT (£140,000 per person) until April 2025 and 10% (£100,000) until April 2026.
Please do not hesitate to get in touch to discuss any of your accounting queries - call us on 020 8661 7878 or email bsg@turpinba.co.uk