Capital Gains Tax
Amongst a variety of changes announced at today’s Autumn Budget, Rachel Reeves confirmed an immediate increase in Capital Gains Tax (CGT) for disposals (other than for residential properties) made on or after 30 October 2024.
Whilst a change was expected, the detail of the increase is somewhat surprising; the lower rate will increase from 10% to 18%, with the higher rate increasing from 20% to 24%. This brings the general rate of CGT in line with the rate of disposals of residential properties, despite the speculation prior to the budget suggesting steeper increases.
What is Capital Gains Tax?
CGT is payable by individuals when they sell a capital asset, such as shares in a company, at a ‘gain’ (i.e. they sold it for more than they purchased it for).
Individuals are entitled to an annual exemption (currently £3,000), with any gain falling within this being exempt from CGT. No changes were announced to the annual exemption.
Gains (other than residential property gains) are taxed at the individual’s marginal rate of tax. Where the gain spans across tax bands, such gains are taxed at the lower rate to the extent that the gains do not exceed the individuals unused basic rate band, and at the higher rate thereafter.
Example
An individual sold 1000 shares in X Plc on 30 October 2024, at £100 per share. They purchased the shares many years ago, at £20 a share, meaning they have a total gain of £77,000 (£100,000 proceeds less £20,000 cost and £3,000 annual exemption).
The individual’s taxable income (i.e. post deduction of personal allowance) within the year is £27,700.
Therefore, the first £10,000 of the gain will fall within the individuals unused basic rate band (up to £37,700) and subject to the lower rate of CGT, with the remaining £67,000 subject to the higher rate.
Old Rates
| £10,000 @ 10% | £1,000 |
| £67,000 @ 20% | £13,400 |
| Total | £14,400 |
New Rates
| £10,000 @ 10% | £1,800 |
| £67,000 @ 20% | £16,080 |
| Total | £17,880 |
Business Asset Disposal Relief (BADR) and Investors Relief (IR)
Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs Relief (ER) provides a lower rate of CGT for individuals who make a material disposal of business assets, which has previously been in line with the lower rate of CGT (10%).
Investors Relief (IR) differs to BADR in that it offers a lower rate of CGT (previously 10%) for external investors who are not connected to the company. Rachel Reeves confirmed the lifetime limit for IR will be reduced from £10 million to £1 million for all qualifying disposals made on or after 30 October 2024, bringing it in line with the lifetime limit for BADR.
With the lower rate of CGT increasing to 18%, there will be a staggered increase to BADR/IR over the coming years to ensure they align with the lower CGT rate. Specifically, they will increase by 4% to 14% from 6 April 2025, and a further 4% to 18% from 6 April 2026. This means there is potentially an incentive in relation to those looking to exit a business in the short term as the tax rates will be lower.
Carried Interest
Carried interest is a performance-related reward received by fund management executives. However, unlike other forms of compensation, carried interest may be subject to CGT rather than Income Tax, provided specific criteria are met. From April 2026, the government will change this so that carried interest is taxed fully as income. In anticipation of the change, the CGT rates applied to carried interest will be increased to 32% from April 2025, during the transition period.
If you have any questions about how the budget or its proposed reforms might affect you, do get in touch on 01242 776000 or tax@randall-payne.co.uk.
