As announced at the Autumn Budget 2024, Capital Gains Tax (“CGT”) rates for gains on the disposal of chargeable assets have been increased from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers, bringing rates in line with the rates for gains on disposal of residential properties. These changes were effective immediate from the date of announcement on 30 October 2024, however, all chargeable assets disposed of prior to this date are still subject to previous rates.
Capital Gains Tax Reliefs
There were also key changes announced to Business Asset Disposal Relief (“BADR”) (formerly known as Entrepreneurs Relief) and Investors Relief (“IR”) within the Autumn Budget. BADR is a relief which reduces the rate of CGT paid on gains made on the disposal of qualifying business assets. There are various types of assets which will qualify for BADR upon their disposal, broadly including the whole or part of a sole trader/partnership business (including furnished holiday lettings prior to 5 April 2025) and shares held in a “personal trading company”.
There are various rules attached to these assets that must be met for the individual to qualify for BADR on their disposal. For sole trader/partnership businesses, the business must have been owned for a minimum period of 2 years prior to disposal and disposed of within 3 years of cessation if trading had ceased prior to disposal. For shares in a personal trading company, the individual must have held a minimum of 5% of ordinary share capital, with at least 5% of voting rights and entitlement to at least 5% of distributable profits and 5% of proceeds on a disposal of share capital in a trading company that they work for. Again, these conditions must have been met for a period of 2 years prior to the disposal.
Investors Relief is a separate relief available to individuals disposing of qualifying shares in an unlisted trading company. In order to qualify for IR, the individual must have held their shares in the company for a continuous period of at least 3 years prior to disposal. The individual must not be a ‘relevant employee’ of the company, i.e. an employee or director. The shares in question must also be new ordinary shares, subscribed for by the individual for cash.
BADR and IR are also subject to a lifetime limit of £1m on such qualifying capital gains (for IR reduced from £10m in the October Budget announcement) and during tax years up to and including the 24/25 tax year, gains on the disposal of assets eligible for BADR/IR are subject to CGT at a rate of 10%. Given the recent increase in the headline rate of CGT to 24% from October, this currently represents a 14% differential in tax rate where BADR/IR applies, which represents a potential tax saving for an individual of up to £140,000.
However, changes in the Budget mean that for disposals taking place on or after 6 April 2025, the rate of CGT under BADR/IR will rise to 14%. Furthermore, where a disposal takes place on or after 6 April 2026, this will rise again to 18%, in line with the new basic rate of CGT.
There is therefore a limited time window remaining in which individuals can maximise the tax saving they will receive on BADR/IR qualifying capital disposals. For any individuals in the process of or contemplating selling a qualifying asset, accelerating the transaction before 6 April 2025 could ensure they utilise this 10% tax rate and minimise their exposure to CGT.
2024-25 disposals- what rate of tax will I pay
2024-25 will see differing rates of CGT applied depending on the date of disposal as outlined above. Typically, the rule of thumb is that the date of a disposal for CGT purposes is the date upon which contracts are exchanged, rather than the date of settlement/completion when assets are transferred. However, anti-forestalling legislation has been introduced which individuals should be aware of. This can impact various scenarios:-
1) If an unconditional contract was entered into to sell an asset before 30 October 2024 (Budget date), but the transaction was only completed after this date, the anti-forestalling rules could apply such that any gain is subject to CGT at 24 percent, rather than the 20 percent that was in force before the Budget announcements were made. Whilst there are exclusions where it can be shown the circumstances are wholly commercial without tax avoidance motive, it will be important to carefully review the legal mechanism and timing of the transaction to determine if it falls under these wide-ranging provisions.
2) If a share reorganisation or exchange was carried out between 6 April 2023 and 30 October 2024, and there is an intention to claim BADR or Investors’ Relief on this reorganisation, the anti-forestalling rules could also have an impact. Where the ‘rollover’ of a share reorganisation occurs automatically, this can mean missing out on a lower rate of tax where the original shares would qualify for BADR or Investors’ Relief but the new ones would not. In these circumstances the taxpayer is usually permitted to elect out of rollover relief and crystallise the gain at which the old shares are standing to use up their entitlement to BADR or investors’ relief before it is lost. Under the new legislation, the disposal date for CGT purposes will be the date the relevant BADR or Investors’ Relief claim is made, and not the date of the reorganisation or exchange itself. This means if the claim is made after the Budget date, the disposal will be subject to the new, higher CGT rates. There are some exceptions to these rules and it will be important to seek advice where they may apply.
3) Ongoing anti-forestalling rules were also introduced for transactions entered into during the period covering the increases to BADR rates in April 2025 and April 2026 similar to those above.
If you are contemplating a capital transaction pre year end or are unsure regarding the tax position of an earlier transaction, please do reach out to your usual RG contact.