Autumn Budget – The new Capital Gains Tax landscape

In time, Rachel Reeves’ first Autumn Budget is likely to be remembered mainly for the increase in employer’s National Insurance Contributions (NIC) that companies (or indirectly their employees) will have to bear from 6 April 2025. Alternatively for the proposed £1m cap on 100% Business Property Relief and 100% Agricultural Property Relief that will be introduced from 6 April 2026. Those are already causing significant concern to farmers and SME business owners.

In that respect it may be possible to regard Capital Gains Tax (CGT) as the tax that got off relatively lightly in the Budget.  In the run up to the Budget, there had been a lot of feverish speculation that CGT rates would be fully aligned with income tax rates (up to 45%). This commentator must confess that he was expecting a 10% increase in CGT rates across the board.

The reality, however, is that CGT rates have increased, but only relatively modestly.

The changes to CGT rates in the Autumn Budget

The changes for individuals can be summarised as follows:

CGT on shares and non-residential property

With effect for disposals on or after 30 October, the CGT rates on shares and non-residential property will increase. For those where the gain falls within the basic rate income tax band, this will increase from 10% to 18%. For where the gain falls above the basic rate income tax threshold this will rise from 20% to 24%.

The Government have therefore aligned the CGT rates on shares and non-residential property with the CGT rates that have applied to residential property since 6 April 2024.

CGT Business Asset Disposal Relief (“BADR”)

This has been a particularly valuable relief for SME owners. It has afforded a CGT rate of 10% on qualifying gains, albeit that the individual lifetime limit was reduced from £10m to £1m back in March 2020.

Some commentators were expecting BADR to be abolished completely with effect from Budget Day, so it is pleasing that Rachel Reeves has retained both the relief and the £1m lifetime limit.

However, whilst the applicable CGT rate on BADR qualifying gains will remain at 10% for the remainder of this tax year, it will increase to 14% for qualifying gains made in the tax year commencing 6 April 2025. It will then increase to 18% for qualifying gains made in the tax year commencing 6 April 2026.  It remains to be seen as to whether these increases are a precursor to the abolition of BADR from 6 April 2027.

CGT Investors’ Relief

Investors’ Relief is a relatively little-known relief that has run parallel to BADR.

Investors’ Relief also affords a 10% CGT rate where certain qualifying conditions are met.  It can be claimed where an individual makes a gain on disposal of shares in an unquoted trading company that he or she subscribed for in cash on or after 17 March 2016. Also where he or she has held the shares for a period of at least three years ending with the date of disposal.  A further condition for Investors’ Relief to apply is that the individual (or a connected person) cannot be an employee of the company in which the shares are held.

When the then Conservative Government reduced the BADR lifetime limit from £10m to £1m in March 2020, the Investors’ Relief lifetime limit was maintained at £10m. Rachel Reeves announced yesterday that the Investors’ Relief lifetime limit has been reduced to £1m with effect from 30 October. Also, as with BADR, the rate of CGT that applies to gains qualifying for Investors’ Relief will increase to 14% from 6 April 2025 and to 18% from 6 April 2026.

Trustees and personal representatives

The foregoing CGT rates apply to individuals. Trustees and personal representatives will be liable to pay CGT at a flat rate of 24% on gains made on or after 30 October 2024.

CGT rates on carried interest

The CGT rate on carried interest payments received by investment managers will increase from the current 18% and 28% rates to a single rate of 32% from 6 April 2025. From 6 April 2026, the Government is proposing to tax carried interest as trading income subject to income tax (at rates of up to 45%) and NIC.

Conclusions on the CGT changes in the Autumn Budget

The changes in CGT rates and reliefs in the Autumn Budget have not been as penal or wide-ranging as had been feared. CGT remains a tax which can be significantly mitigated through appropriate planning and structuring.

Valuable CGT reliefs such as CGT rollover relief on the replacement of business assets, and CGT holdover relief for gifts of business assets, or gifts into trust, have emerged from the Budget unscathed. The introduction of the proposed £1m cap for 100% Business Property Relief and Agricultural Property Relief from 6 April 2026 is likely to mean that there will be an increased focus on lifetime gifting of assets. This requires the CGT implications to be considered as well as the other tax and commercial / family ramifications.

Please contact Sheldon Cole, Tax Partner at Westcotts at sheldon.cole@westcotts.uk or 01934 620428. You can also get in touch with your usual Westcotts contact if you have any queries arising from this blog.