Potential increases to Capital Gains Tax: what it means for you

Capital Gains Tax (CGT) has become a focal point in the general election. Speculation is growing over what changes might happen post-election, with many believing there will be increases. As a business owner, what impact could this have?

CGT is a tax on the profit you make when you sell (or ‘dispose of’) an asset that’s increased in value. The gain you make is taxed, not the total amount you receive. You can earn an annual allowance without paying CGT, and the tax rate depends on your income tax band.

Currently, CGT is levied on individuals when they sell an asset for more than its base cost, typically the price paid for the asset. For example, if a rental property purchased for £300,000 is sold for £500,000, the capital gain is £200,000, and CGT is payable on this amount.

“We have noticed our clients and business owners are increasingly worried about the post-election impact by any incoming government policies.”

Current Capital Gains Tax rates and rules
The current CGT rates for residential property are taxed at 24% (18% if the individual is a basic rate taxpayer). Most other assets are taxed at 20% (10% if the individual is a basic rate taxpayer).

The first £1 million of gains relating to qualifying business assets may be taxed at 10% with the balance taxed at 20%, under Business Asset Disposal Relief (BADR).
Compared to income tax rates, which can reach up to 45%, these CGT rates are relatively low. There is speculation that CGT rates might increase post-election, potentially aligning with income tax rates which will have a significant impact on taxes paid. In some circumstances this could cost hundreds of thousands of pounds to business owners who sell.

Tax planning ahead of a post-election Budget
With the potential changes on the horizon, both individuals and businesses should consider being proactive with their tax and business strategy planning.

The potential abolition of BADR or changes to the rates and reliefs available could significantly impact the tax efficiency of selling a business. Business owners may wish to review their plans and consider acting before any changes are implemented, depending on their circumstances.

Tim Stovold, Partner at accountancy firm, Moore Kingston Smith:

“If people were trying to sell their business, there’s a big push to get that done pre-election or soon after the election.”

We have seen this same topic of discussion with our clients and business owners, who are increasingly worried about the post-election impact by any incoming government policies.

If you would like a confidential discussion about the options available to you, please contact:

James Gosling | james.gosling@ma-chambers.com
Pieter van Rooyen | pieter.vanrooyen@ma-chambers.com

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