Understanding the Impact of the Autumn 2024 Budget on Capital Gains Tax
The Autumn 2024 Budget has introduced significant changes to Capital Gains Tax (CGT), impacting investors, business owners, and property owners alike. With a focus on addressing fiscal gaps, the Chancellor of the Exchequer, Rachel Reeves, has implemented adjustments that aim to increase revenue but have stirred concerns among stakeholders. Below, we break down the main changes, what they mean, and how individuals and businesses can navigate this new financial landscape.
Key Changes to CGT in the 2024 Budget
The Autumn 2024 Budget announced increases in CGT rates, with the government’s objective to align more closely with income tax bands. Effective immediately from 30 October 2024, the basic CGT rate has risen from 10% to 18% and the higher rate from 20% to 24%. This change brings the tax rate on gains from assets, such as shares and managed funds, in line with those from residential property sales, effectively raising the bar for tax obligations on capital gains.
For individuals holding taxable assets, this shift means any future profits from asset sales could now incur a higher tax liability. This is a notable development, particularly for those relying on capital gains from investments or property as part of their income.
| CGT Category | Previous Rate (2024-25) | New Rate effective immediately 30.10.2024 |
| Basic Rate Taxpayers | 10% | 18% |
| Higher Rate Taxpayers | 20% | 24% |
| Residential Property Gains (Basic Rate) | 18% | 18% (unchanged) |
| Residential Property Gains (Higher Rate) | 28% | 28% (unchanged) |
| Carried Interest Gains | 28% | 32% (moving to income tax treatment by 2026) |
Business Asset Disposal Relief and Investors’ Relief Adjustments
The changes extend to Business Asset Disposal Relief (BADR) and Investors’ Relief (IR), which are popular among business owners and investors. BADR provides a reduced CGT rate for business asset disposals. This rate stands at 14% as of April 2025 and will increase to 18% from April 2026. Similarly, the lifetime limit for BADR and IR has been reduced to £1 million, making it essential for businesses to carefully plan the timing and structure of asset disposals to minimise tax liabilities.
These adjustments underscore the importance of planning for entrepreneurs considering selling their business or investors looking to divest in the near term. The phased increase in relief rates adds a layer of complexity, potentially making disposals more costly if timed after April 2025.
Residential Property and Carried Interest Rates
The residential property surcharge remains unchanged, yet the increase in the general CGT rate aligns other asset gains with property. Additionally, for those in private equity, carried interest gains are subject to a CGT rate of 32% from April 2025, with plans for a complete transition to income tax treatment by April 2026.
This change could significantly affect private equity professionals, as it shifts their tax treatment closer to that of income rather than capital gains, thus increasing their overall tax burden.
Implications for Investors and Asset Holders
For individual investors, these changes bring added pressure to maximise the use of tax-efficient accounts such as ISAs and pensions. The annual CGT allowance remains frozen at £3,000, down from £6,000 in 2023/24, offering limited shelter from tax on gains beyond this threshold. As asset values rise, especially in a high-inflation environment, more people may find themselves paying CGT on relatively modest gains, reinforcing the importance of proactive tax planning.
Investment analysts have expressed concerns that the increased CGT rates could discourage long-term investments, potentially affecting overall market growth. For instance, funds managed within ISAs or pension wrappers remain tax-free, but gains from assets outside these structures could face the elevated CGT rates. This nuance means investors must consider their asset locations strategically.
Strategic Considerations for Managing CGT in Light of the Budget
From making the most of tax-efficient investment accounts to carefully timing disposals, several ways exist to adapt to the new CGT landscape. Consider these five practical considerations to help navigate these changes and optimise financial outcomes:
With the new CGT rates in place, making full use of ISAs and pension contributions has become even more critical. Assets held within these accounts are shielded from CGT, which can help mitigate the tax impact on gains.
For those who can afford to hold onto their investments, retaining assets rather than selling may allow them to avoid immediate CGT liabilities, especially if they’re close to retirement or a lower tax bracket in the future.
The CGT spousal exemption remains in place, allowing married couples and civil partners to transfer assets between them without incurring a CGT event. This strategy can be particularly useful for couples with differing income tax rates, as it enables them to make use of both partners’ CGT allowances.
Offshore bonds offer a tax-efficient structure, where gains are deferred and taxed only upon withdrawal. This flexibility can benefit individuals in higher tax brackets who anticipate being in a lower bracket at the point of withdrawal.
Given the complexity of CGT and the recent changes, seeking advice from financial planners or tax advisors can be invaluable. Professionals can offer personalised strategies for managing asset disposals, tax wrappers, and income withdrawals in a way that aligns with long-term financial goals.
The Bigger Picture: Balancing Tax Policy and Economic Growth
The 2024 CGT changes are part of a broader government initiative to address the fiscal gap, but they highlight the tension between tax policy and economic incentives. Critics argue that higher CGT rates could deter investment in UK assets, potentially undermining the UK stock market’s attractiveness and reducing long-term returns for UK investors. This viewpoint suggests a delicate balance for policymakers, who must weigh the need for revenue against the impact on investor behaviour and economic growth.
Navigating the New CGT Landscape
The Autumn 2024 Budget has set a new course for CGT, creating both challenges and opportunities for investors and business owners. The increased rates place a premium on tax planning, underscoring the importance of using tax-efficient wrappers and carefully considering asset sales timing. While some may see the changes as an extra burden, strategic financial planning can help mitigate these effects, ensuring that individuals and businesses are positioned to achieve their financial goals despite the shifts in tax policy.
For those affected by the CGT changes, Jan McDermott’s team is available to help you explore your options and navigate the complexities of the new tax landscape. Contact us today to discuss how we can assist you with your tax and financial planning needs.