The recent Budget introduced significant changes to Capital Gains Tax (CGT) rates, affecting individuals, business owners, and shareholders alike. These changes are crucial for those planning to dispose of assets or sell a business, as they could significantly impact your tax liabilities.
Overview of the Main CGT Changes
Effective immediately:
- Main CGT Rates: The tax rate has increased to: –
- 18% for basic rate taxpayers (up from 10%)
- A basic rate taxpayer is someone whose personal income is below £50,270.
- 24% for higher rate taxpayers (up from 20%)
Residential Property Gains remain unchanged, meaning higher-rate taxpayers will still pay 24%.
Changes to Business Asset Disposal Relief (BADR)
BADR applies to qualifying disposals such as:
- The sale of a sole trade or partnership.
- The sale of qualifying shares in a trading company or a holding company of a trading group.
The changes to BADR rates are as follows: –
- The 10% tax rate under BADR remains for the rest of this tax year (until 5 April 2025).
- From 6 April 2025, the BADR rate will increase to 14%.
- From 6 April 2026, the BADR rate will rise further to 18%.
The £1,000,000 lifetime gains limit for BADR remains unchanged.
What Do These CGT Changes Mean for You?
The timing of a business sale has never been more critical. To illustrate, here’s how the changes might affect tax liabilities on a sale:
- Selling Now (Before 6 April 2025):
- Assume a business owner makes a gain of £1,000,000 on a qualifying sale.
- Tax under BADR at the current rate (10%): £100,000.
- If the gain exceeds the BADR lifetime limit, the excess is taxed at the main CGT rates of 18% (basic rate) or 24% (higher rate).
- Selling Between 6 April 2025 and 5 April 2026:
- The same gain of £1,000,000.
- Tax under BADR at the new rate (14%): £140,000. This represents an additional £40,000 in tax compared to selling before April 2025.
- Selling After 6 April 2026:
- The same gain of £1,000,000.
- Tax under BADR at the increased rate (18%): £180,000. This is an additional £80,000 compared to selling now and £40,000 more than selling before April 2026.
Planning Ahead for Capital Gain Tax Changes
These changes highlight the importance of proactive tax planning. Business owners considering a sale in the near future should assess whether bringing forward their plans result in substantial tax savings.
At the same time, the decision to sell a business should never be driven solely by tax considerations. Factors like market conditions, business valuation, and readiness for sale are equally critical. Johnston Wood Roach are Chartered Accountants & Chartered Tax Advisors in Waterlooville.
Contact our friendly and knowledgable team today to discuss your tax affairs for your business on 02392 269977 or email enquiries@jwraccountants.co.uk
