The UK government’s latest Budget has introduced higher capital gains tax (CGT) rates for both basic and higher-rate taxpayers. Effective immediately, these changes will impact asset disposals, with significant implications for business owners and investors. This guide explores the new rates, adjustments to reliefs, and strategies for minimising tax liabilities.
Key Changes to Capital Gains Tax
- Higher Rates: Basic-rate CGT has risen from 10% to 18%, while higher-rate taxpayers now face 24% (up from 20%).
- Business Asset Disposal Relief (BADR): From April 2025, the CGT rate for BADR will increase from 10% to 14%, rising further to 18% in April 2026.
- Investors’ Relief: The lifetime limit will drop from £10 million to £1 million from April 2025, reducing benefits for large-scale investors.
Impact on Business Sales and Investments
These rate increases make careful planning essential for those looking to sell assets or businesses. BADR remains a valuable relief, but with rates scheduled to rise, completing disposals before April 2025 can secure the current lower rates.
Strategies to Manage Higher CGT Liabilities
- Claim Capital Losses:
- Declare losses from previous years to offset taxable gains.
- Losses can be carried forward indefinitely for future use.
- Spousal Transfers:
- Transferring assets to a lower-income spouse before disposal can reduce the overall CGT rate applied.
- Use Rollover and Gift Relief:
- Rollover Relief defers CGT on business asset disposals if proceeds are reinvested.
- Gift Relief allows deferral of CGT when assets are transferred to family members, such as shares in a trading company.
- Optimise Property Disposals:
- Deduct all allowable costs, such as legal and renovation expenses, to reduce taxable gains.
- Spousal transfers can also lower tax on property sales.
- Leverage Pension Contributions:
- Pension contributions can expand your basic tax band, potentially reducing the CGT rate on disposals in the same year.
- Explore EIS and SEIS Investments:
- Investing in Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) shares can defer CGT and provide additional tax benefits.
Planning Ahead for Business Owners
Business owners should:
- Time Disposals: Aim to sell qualifying assets before April 2025 to benefit from the current lower BADR rate.
- Avoid Anti-Forestalling Rules: Ensure transactions comply with regulations to avoid higher rates being applied retroactively.
Conclusion
The rise in CGT rates presents challenges for taxpayers but also highlights the importance of proactive planning. Strategies like utilising reliefs, optimising disposals, and seeking professional advice can help mitigate the impact of these changes. With careful preparation, individuals and businesses can navigate the new tax landscape effectively.
Disclaimer:
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