Chancellor Disincentivises Entrepreneurs with Increases to Capital Gains Taxes

As anticipated, the Government has made significant changes to capital gains tax including increasing the rate of CGT and also restricting the benefits that can be claimed through certain capital gains tax reliefs:

1. Increase in the CGT rate

From 30 October 2024, the main rates of CGT will increase. The lower rate increase from 10% to 18% on chargeable capital gains falling within and individuals basic rate tax band, and the higher rate will increase from 20% to 24% on chargeable capital gains in excess of an individual’s basic rate tax band.

This will significantly increase the tax liability on individuals planning to dispose of chargeable assets. The impact can be highlighted in the example below:

An individual has disposed of a chargeable asset, which has consequently resulted in a chargeable gain of £100,000. They have £10,000 of their basic rate band still available in the tax year.

Residential property capital gains tax rates will remain unchanged.

1. Business Asset Disposal Relief & Investors Relief

It has also been announced that the government plans to gradually increase the rate of CGT applied for the purposes of Business Asset Disposal Relief (BADR) and Investors Relief. Broadly, these reliefs allow an individual to be taxed at a lower rate of CGT on the disposal of qualifying business assets.

Prior to the Budget, individuals who qualified for the relief were subject to CGT at a rate of 10% on qualifying gains up to a limit of £1 million.

The proposed changes outlined in the budget will see this 10% rate increase to 14% from 6 April 2025, and a further increase to 18% from 6 April 2026. The impact of this is highlighted in the example below:

An individual has disposed of a chargeable asset, the disposal has resulted in a chargeable gain of £900,000, the disposal has also qualified for BADR: