Capital gains tax – what are the key changes?

Understanding Capital Gains Tax Key Rate Changes and Planning Strategies

One of the taxes that underwent significant changes following the Autumn Budget was Capital Gains Tax (“CGT”).

From discussions we have had with several clients, it is clear that there is some uncertainty regarding the changes introduced and their impact on individuals and business owners.

With this in mind, TAG Accountants have dedicated this month’s focus to shedding light on this topic, providing greater clarity on the key adjustments, and offering a timely reminder about the benefits and proper utilisation of rollover relief.

CGT Rates – When and By How Much Are They Increasing?

The key changes to rates of CGT now effective or planned for the future are as follows:

Effective from 30 October 2024: The CGT rates for most assets (excluding residential property and carried interest) have increased. For basic rate income taxpayers, the rate has risen from 10% to 18%. For higher rate income taxpayers, as well as trustees and personal representatives, the rate has increased from 20% to 24%. The CGT rates for residential property disposals (18% and 24%) remain unchanged at this time.

Effective from 6 April 2025: The CGT rate for Business Asset Disposal Relief and Investors’ Relief will increase from 10% to 14%.

Effective from 6 April 2026: The CGT rate for Business Asset Disposal Relief and Investors’ Relief will increase further to 18%.

Carried Interest: The CGT rates for carried interest are also changing. Currently, these are 18% and 28%. From 6 April 2025, a single unified rate of 32% will apply. Further changes to carried interest taxation are expected from April 2026, and we will update you on these as details are released.

Investors’ Relief Lifetime Limit: The lifetime limit for Investors’ Relief is being reduced from £10 million to £1 million for qualifying disposals made on or after 30 October 2024. The lifetime limit for Business Asset Disposal Relief remains at £1 million. Special provisions may apply to certain contracts entered into before 30 October 2024.

One of the more significant and challenging consequences is the rise in the Business Asset Disposal Relief rate. This change means that business owners planning to exit in the near future have an opportunity to save £40,000 in Capital Gains Tax by completing a disposal before the rate increase takes effect on 6 April 2025. For those who are unable to meet this deadline, there remains a strong incentive to arrange a disposal during the 2025/26 tax year, as the rates are set to rise by a further 4%, making early action even more financially beneficial.

In addition to the upcoming changes to inheritance tax, which will see business property relief capped at £1 million, older shareholders in family-owned businesses must now give much more careful thought to their future strategy for passing ownership to the next generation. With these restrictions in place, ensuring that succession planning is both tax-efficient and aligned with long-term business goals has become increasingly important to minimise exposure to substantial tax liabilities.

Do Not Forget About Business Asset Rollover Relief

Business Asset Rollover Relief serves as an invaluable mechanism for effectively managing your CGT liability when reinvesting in business assets. This relief enables you to defer the payment of CGT by “rolling over” the gain from the sale of an existing asset into the purchase cost of a new qualifying asset. In essence, rather than paying tax immediately, the liability is postponed until the newly acquired asset is eventually sold, providing greater flexibility in financial planning and cash flow management.

Here Is How It Works:

• If you reinvest the full proceeds from selling a business asset into a new one, the entire gain is deferred.
• If you reinvest only part of the proceeds, you can still claim partial rollover relief.
• You can even claim provisional relief if you plan to reinvest but have not yet purchased the new asset.
• Rollover relief also applies to improvements made to existing assets.

Key Conditions for Rollover Relief Include:

• The new asset must be purchased within three years of selling the old one (or up to one year before), although HMRC may sometimes extend this timeframe.
• Both the old and new assets must be used in your business, which must be trading when you sell the old asset and buy the new one.
• Claims for relief must be made within four years of the end of the tax year when the new asset was bought (or the old one was sold, if later).

So, if you are considering selling an existing business with the intention of investing in another business at a later stage, making use of this relief can be an effective way to defer your CGT liability arising from the sale. By rolling over the gain into a new qualifying investment, you can postpone the tax burden, allowing for greater financial flexibility and better cash flow management as you plan your next business venture.

Take Advice to Manage Your CGT Liability

The experienced tax specialists at TAG Accountants are on hand to provide expert guidance on effectively managing your CGT liabilities.

With that in mind, if any of the matters discussed above are relevant to your personal or business circumstances, we strongly encourage you to contact us for tailored advice. You can arrange a consultation by clicking HERE or by calling us directly on 01902 783172.

We are dedicated to guiding you through these tax changes, helping you make well-informed decisions to optimise your financial position, and very much look forward to hearing from you.