The Chancellor has announced in the 30th October 2024 budget various increases in Capital Gains Tax (CGT) rates, some with immediate effect which may affect the owners of SME businesses across a variety of sectors who are planning on selling their business or their share of it.”
Balbor Sundar, Corporate and Business Tax Partner at Mercer & Hole comments: “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.
Balbor continues: “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.”
“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.
Mercer & Hole has 24 partners and over 250 employees across its offices in London, Milton Keynes, St Albans, and Rickmansworth.
