The recent Autumn Budget introduced a range of significant tax changes that will impact individuals and businesses alike. In our ‘Unpacking the Budget’ series, we delve into these updates, providing clear explanations and actionable insights to help you understand how the changes may affect you.
In this blog, we focus on the changes to CGT, shedding light on the rate increases, key deadlines, and why it’s essential to revisit your financial plans to mitigate the impact of these changes.
After much speculation in the lead up to the Autumn Budget, the Chancellor confirmed an immediate increase to the rates of Capital Gains Tax (CGT) when she delivered her speech on 30 October 2024.
Many had suspected that CGT rates would be aligned with income tax rates, or that the reliefs available would be dramatically reformed. Instead, CGT largely remains as it was before, with some increases to the rates applied and a cut in the allowances available for some reliefs.
These changes apply to disposals made on or after 30 October 2024:
Residential property gains were previously taxable at 18% for basic rate taxpayers and 24% for higher rate taxpayers. These rates were not changed and are now in line with the rate for other gains.
The CGT rate which applies to gains on which Business Asset Disposal Relief or Investors’ Relief are claimed, will also increase:
In addition, the lifetime limit for Investors’ Relief has been reduced from £10 million to £1 million. This limit applies to disposals on or after 30 October 2024, anti-forestalling measures apply to certain disposals made before this date. In the main, this will affect unconditional contracts entered into before budget day but completed after that date.
The lifetime limit for Business Asset Disposal Relief remains at £1 million.
Clearly, anyone who was planning on making use of either of these reliefs in the future may now be worse off and should take urgent advice to see what action can be taken now.
From 6 April 2025, carried interest gains will be taxable at 32% instead of the current 28%. This is a transitional step until 6 April 2026, when major reforms to the taxation of carried interest will be introduced. Carried interest will then be brought fully into the income tax regime, taxed as deemed trading income with income tax and national insurance applied to profits. This will apply a flat rate of income tax to all returns, regardless of the underlying character of the profit.
A discount mechanism will apply to qualifying carried interest, removing 27.5% of the interest from the UK tax net. An additional rate taxpayer will therefore pay an effective rate of 34.1% (72.5% of 47%). The Government will publish more detail about these changes in 2025.
If you are concerned about the announced changes or feel that a review of your plans are required, please feel free to get in touch with our Tax Directors Gail Swinburn (gailswinburn@lubbockfine.co.uk) or Matthew Spencer (matthewspencer@lubbockfine.co.uk).
