Key CGT Rate Changes Impacting Business Asset Disposals
As of 30 October 2024, the main Capital Gains Tax (CGT) rates for assets other than residential property and carried interest rose from 10% to 18% for basic rate taxpayers, and from 20% to 24% for higher-rate taxpayers. (gov.uk)
For Business Asset Disposal Relief (BADR) (formerly Entrepreneurs’ Relief), the CGT rate is increasing to 14% from 6 April 2025, and then further to 18% from 6 April 2026. Additionally, the lifetime limit remains £1 million. (gov.uk)
What Business Owners Need to Know Now
- Disposals planned before 5 April 2025 could still benefit from the older lower rate of BADR if they occur before the date when the 14% rate takes effect. This may be advantageous if you’re considering selling or restructuring soon.
- If waiting until later, ensure the increased 18% rate is factored into calculations for disposals happening on or after 6 April 2026.
Practical Tips and Strategy
- Timing matters: If possible, arrange for business or share disposals before 6 April 2025 to access the 10% BADR rate. If that’s not feasible, then before 5 April 2026 to use 14%, otherwise expect 18%.
- Use losses to offset gains: Review whether you have unused capital losses to offset against gains to reduce taxable exposure.
- Hold assets until thresholds shift: Evaluating whether postponing disposals until after April 2026 makes sense; sometimes staying invested longer may outweigh the higher tax rate.
- Consider share restructuring and company structure: Sometimes moving from a sole trader or simple partnership to a trading company may have implications if business rules change. ALWAYS get professional legal/tax advice.
Example Scenario
Imagine a sole trader plans to sell their business in July 2025. Under new rules, the share of gain beyond their lifetime BADR limit will be taxed at 14%, since the sale is between 6 April 2025 and 5 April 2026. If instead the sale happens in May 2026, it will face a rate of 18% on that relief. If the business delays, net proceeds may be significantly reduced.
Similarly, “carried interest” gains (investment manager type income) are subject to a unified 32% CGT rate from 6 April 2025. If you hold or deal in carried interest, expect no tiering — all carried interest taxed at 32%. (commonslibrary.parliament.uk)
Summary Takeaways
- Review exit or disposal plans now with dates in mind (pre-April 2025 vs between 2025-26 vs post-April 2026).
- Use CGT annual exemption (£3,000 for individuals in 2025-26) fully to reduce gains. (commonslibrary.parliament.uk)
- Don’t ignore non-tax factors like transaction costs, business valuations, legal and administrative timing.
- Engage professional advice early to cash in on lower rates before they increase.