Following the Chancellor’s Autumn Budget announcement, significant changes have been made to Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT), impacting both individual and corporate taxpayers. The changes aim to increase revenue but also create opportunities for tax planning.
Here’s an overview of the main tax changes, an example of their effects, and some strategies to consider.
Increased CGT Rates on Disposals
Applicable on and after 30 October 2024
- The main rate of CGT for basic-rate taxpayers increases from 10% to 18%.
- For higher-rate taxpayers, the rate goes up from 20% to 24%.
- Residential property disposals remain taxed at 18% (basic rate) and 24% (higher rate), with no rate change.
- The rate of CGT applicable to personal representatives and trustees is increased from 20% to 24%.
Applicable on and after 6 April 2025 and 6 April 2026
Business Asset Disposal Relief (BADR)
- For eligible business assets, the CGT rate on lifetime gains (up to £1 million) rises to:
- 14% for disposals between 6 April 2025 and 5 April 2026.
- 18% for disposals after 6 April 2026.
- Previously, these qualifying gains were taxed at 10%, making the increase impactful for small business owners looking to exit.
Investors’ Relief
- Investors’ Relief, now capped at £1 million (down from £10 million), also sees increased CGT rates similar to BADR:
- 14% for disposals made between 6 April 2025 and 5 April 2026.
- 18% for disposals after 6 April 2026.
Carried Interest
- Rate of CGT on carried interest arising to be increased from 18%/28% to a single rate of 32% with effect from 6 April 2025.
Stamp Duty Land Tax (SDLT)
Higher SDLT for High-Value Property Purchases by Companies
- The SDLT Rate on residential properties over £500,000 acquired by companies (where certain reliefs aren’t applicable) rises from 15% to 17% starting 31 October 2024.
- For non-UK-resident companies, the total SDLT rate on these properties could reach 7% for the property below £500,000 and 19% over £500,000, factoring in the 2% non-resident surcharge.
Higher SDLT Surcharge on Additional Dwellings
- The surcharge on additional property purchases by companies or individuals not replacing their primary residence increases from 3% to 5% from 31 October 2024.
- Contracts exchanged before 31 October 2024 (and not altered afterwards) will avoid this rate increase if completed after this date.
Example of the Tax Impact
Example: 1
Let’s say Mona, a higher-rate taxpayer selling an investment property (non-residential) in November 2024. Here’s how the tax will differ from previous years.
- If they sold a property on August 2024 with a gain of £100,000, the CGT would be:
- £20,000 (20% of £100,000).
- With the new rate, the same gain on this property sold on November 2024 (after 31 October 2024) would be taxed as:
- o£24,000 (24% of £100,000).
This £4,000 increase represents a 20% rise in CGT liability for higher-rate taxpayers on this type of disposal.
Tax Planning Opportunities & Considerations
The new rates present some immediate tax planning opportunities. Here are a few considerations to help mitigate the increased tax burden.
Timing of Asset Disposals
Selling Before April 2025
Small business owners eligible for BADR should consider selling qualifying assets before April 2025, when the 10% rate still applies. This timing could mean significant tax savings compared to waiting, when the rates will rise to 14% and then to 18%.
Evaluate Future Disposals
For investors with gains nearing the £1 million lifetime cap, it may be worth disposing of assets before the Investors’ Relief rate increases on 6 April 2025.
Example: 2
Imagine a small business owner planning to sell their business for a gain of £1 million. If they sell before 6 April 2025, they’ll pay £100,000 in CGT (10%). If they wait until after that date, the tax rises to £140,000 (14%) in the 2025-2026 tax year or £180,000 (18%) from April 2026 onward, potentially adding up to £80,000 more in tax.
SDLT Considerations on Property Purchases:
Avoiding the Surcharge
Buyers aiming to avoid the new 5% SDLT surcharge on second homes should act quickly to finalise contracts for properties that fit within their primary residence requirements. Since the increased surcharge applies to completions on or after 31 October 2024, existing agreements could bypass the new rate if completed before this date.
Corporate Acquisitions
Companies acquiring high-value properties for investment may want to review SDLT implications, particularly if relief options are limited. Adjusting strategies, such as waiting to acquire until reliefs or alternative structures are available, could be beneficial.
Conclusion
The Autumn Budget 2024’s tax changes bring about notable rate increases for CGT and SDLT, especially impacting business owners, property investors, and corporate property purchasers. With a clear understanding of the new rates, taxpayers can take proactive steps to mitigate these increases. By carefully timing disposals, considering reliefs, and planning around SDLT thresholds, there are opportunities to navigate these new tax rules effectively.
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