Recent hikes in Capital Gains Tax (CGT) have captured the attention of business owners and investors alike. With the Chancellor’s announcement during the Autumn Budget, the CGT rate for basic rate taxpayers has risen from 10% to 18%, while higher rate taxpayers will see an increase from 20% to 24%. These changes took effect immediately on Budget day, October 30, marking a significant shift in the landscape of capital gains taxation.
Additionally, the flat rate of CGT that applies to disposals qualifying for Business Asset Disposal Relief (BADR) is set to rise from 10% to 14% in April 2025 and then to 18% in April 2026. Importantly, while the qualifying criteria and lifetime limits for BADR remain unchanged, the lifetime limit for investors’ relief will drop from £10 million to £1 million starting in April 2025, aligning the CGT rates with those for BADR.
Increased Tax Liabilities
Given these Capital Gains Tax changes, business owners contemplating the sale of company shares or liquidating assets must be vigilant. Increased tax liabilities are likely for disposals made in the future, particularly due to the new anti-forestalling provisions targeting transactions aimed at benefiting from favorable CGT rates. Unconditional contracts that did not complete by Budget day will be subject to the new rates, and any contracts entered into between Budget day and April 2026 that remain uncompleted by April 2025 may also fall under these rules.
Planning Opportunities Amidst Capital Gains Tax Changes
In light of the new CGT landscape, now is the time to evaluate your financial strategy. If you have capital losses that you haven’t declared, you can claim these losses up to four years after the end of the tax year in which you sold the loss-making asset. Carrying forward these losses indefinitely allows you to offset them against future gains, effectively reducing your CGT liability—a strategy that is often overlooked.
Moreover, the applicable CGT rate depends not only on the asset sold but also on your income tax band. By making pension contributions, individuals can extend their basic rate tax band, potentially lowering the portion of income subject to higher CGT rates. This strategy can be particularly effective for those anticipating taxable gains in high-income years.
Another insightful strategy involves transferring assets between spouses on a tax-neutral basis. If your spouse has significantly lower income, transferring an asset to them before a sale could help you benefit from a more favorable CGT rate.
Additionally, when disposing of an asset, remember to deduct all eligible acquisition and disposal costs, such as legal and transaction fees, as these can significantly minimize your taxable gain. This is especially crucial for property disposals, where incidental costs can accumulate.
Leveraging Reliefs
Maximising available reliefs is crucial in the wake of the recent Capital Gains Tax changes. With inheritance tax reforms effective from April 2026, many may consider transferring assets to family members earlier than planned. While this move can be beneficial from an inheritance tax perspective, it may attract immediate CGT charges on asset transfers to connected parties. However, gift relief may be available for certain assets, like shares in a trading company, allowing you to defer some or all of the CGT liability.
Strategies for Mitigating Capital Gains Tax (CGT) on Business Sales
One alternative strategy to mitigate immediate CGT charges is reinvesting your sale proceeds into qualifying Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) shares. These options not only offer CGT deferral but also provide potential income tax benefits. It’s important to note that investments in EIS and SEIS are often considered high-risk, making guidance from a financial advisor essential. However, the attractive tax reliefs and rollover options they offer can significantly reduce your immediate CGT liability.
For those considering selling their business, especially with plans to qualify for Business Asset Disposal Relief (BADR), timing is key. To take advantage of current CGT rates, transactions should be completed by April 6, 2025. The anti-forestalling rules indicate that simply exchanging contracts may not be sufficient to protect yourself from potential tax increases; completing the deal is vital to avoid a higher CGT charge.
Additionally, smaller business owners might benefit from transferring shares between spouses to unlock further relief opportunities. Individuals qualifying for BADR can claim relief up to a lifetime limit of £1 million. If you’re planning to sell your business in the coming years, consider transferring part of your business to your spouse to access these favorable rates. However, be mindful that the recipient must meet the conditions for BADR independently, so careful planning is essential.
While these strategies may not fully shield gains under the current 10% rate, they are worth exploring, especially if your proceeds could be subjected to the higher 24% CGT rate in the future. Despite the seemingly abrupt changes in CGT regulations, numerous opportunities exist to alleviate the burden of CGT increases. Since each situation is unique, it is advisable to consult with an accountancy expert who can provide clarity and tailored advice on your specific circumstances.
In summary, understanding the implications of Capital Gains Tax changes and exploring available reliefs can help business owners strategically navigate their financial landscape while minimising tax liabilities. Don’t hesitate to seek professional guidance from one of our taxation experts to make the most of these opportunities.
