As widely anticipated, the Chancellor has announced in today’s budget various increases in Capital Gains Tax (CGT) rates, some with immediate effect.
Captial Gains Tax Rates Update
The main rates of CGT having been set at 10% and 20% since 6 April 2016 have increased to 18% and 24% with effect from 30 October 2024. The lower rate applies to individuals to the extent that any gains fall within their unused basic rate income tax band, with the higher rate applying to other gains made by individuals and trusts.
These main rates are now in line with the rates that previously applied to gains on residential property, and they, therefore, apply to all gains except those relating to carried interest, and those which qualify for Business Asset Disposal Relief (BADR) or Investors Relief (IR).
Where the main rates do not apply also saw changes being announced, although these will not all apply with immediate effect.
Firstly, carried interest gains which had previously been subject to CGT at 18% or 28% will be subject to CGT at a single rate of 32% with effect from 6 April 2025.
Business Asset Disposal Relief (BADR) & Investor Relief (IR) Updates
Secondly, the 10% rate that current applies to gains qualifying for BADR and IR will be increased to 14% from 6 April 2025, and to 18% for disposals made from 6 April 2026.
BADR is available for qualifying disposals of business assets up to a lifetime limit of £1m per individual. Previously, this was worth up to £100,000 (being the difference between 10% and 20% on gains of up to £1m). For the remainder of the current tax year, the potential benefit will increase to £140,000, before it then falls to £100,000 again in 2025/26, and £60,000 from 2026/27 onwards.
IR was introduced in 2016 to provide a similar relief to BADR but targeted at individuals who invest in companies in which they do not work. At the time of the introduction of IR, BADR (then known as Entrepreneurs’ Relief) had a lifetime limit of £10m and the IR rules matched this. The BADR lifetime limit was reduced to £1m in 2020, and the IR limit has now similarly been reduced to £1m from 30 October 2024.
One other CGT measure was announced, which is intended to affect individual members of Limited Liability Partnerships (LLP) who contribute assets to the LLP at a time when the LLP is transparent for tax purposes (because it is carrying on a trade or business with a view to profit) and who later receive those assets back from the LLP when it is opaque for tax purposes (typically because it is in liquidation). Those individuals will now be deemed to have sold and reacquired those assets at their market value at the time of the original contribution, with any associated gain accruing at the time they subsequently receive the asset from the LLP.
Overall, these measures are forecast to generate approximately £1.5bn for the Treasury in 2025/26, and while this is relatively minor in the grand scheme of things, the impact will be significant for many of the small group of taxpayers that pay CGT each year.
Contact Mercer & Hole
If you are worried about the changes mentioned above and would like to discuss your options, please do not hesitate to contact Balbor Sundar or a member of the Corporate and Business Tax team. We are here to help.
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