The immediate changes to the main capital gains tax (CGT) rates made in the Autumn Budget precluded any effective planning around them. However, changes announced for business asset disposal relief (BADR) and investors’ relief will not be enacted until the new financial year, meaning some planning is possible for business owners and investors.

Gains falling within a taxpayer’s basic rate tax band of £37,700 are now subject to the CGT rate of 18%, having been increased from 10%. A higher rate of 24% (previously 20%) applies to gains which fall above this basic-rate threshold. 

Business assets

The rate of CGT where gains qualify for BADR remains at 10% for the current tax year – until 5 April 2025. Relief is available against the first £1 million of qualifying gains realised during a taxpayer’s lifetime.

• The 10% rate is now more advantageous than ever given the increase to the main rates of CGT. For example, on £1 million of gains, the tax saving is £140,000 if the 24% rate of CGT would otherwise apply. Before the Budget changes, the saving was £100,000.
• From 6 April 2025, the rate of BADR will increase by 4% to 14%. Assuming no change to the higher rate of CGT, the amount of tax saving on £1 million of gains will then fall back to £100,000.
• There will be a further 4% increase from 6 April 2026 so that the rate of BADR is equalised with the 18% main lower rate. The tax saving will be a relatively modest £60,000.

The qualifying conditions for BADR can be complex. For example, a company may not meet the trading condition if there are substantial non-trading activities. There is a 5% shareholding requirement where shares are being disposed of, and this condition can be problematic where share issues have diluted a shareholding to less than 5%.

Given the reduced tax saving and the complexity of the qualifying conditions, BADR is likely to be of less importance in the future.

Investors’ relief

Investors’ relief effectively extends BADR to long-term external investors in unlisted trading companies. Before the Autumn Budget, investors’ relief came with a separate lifetime limit of £10 million, but the limit has been reduced to £1 million for disposals made on or after 30 October 2024.

The rates of CGT on gains qualifying for investors’ relief are the same as those for BADR, so the current rate of 10% will increase to 14% for 2025/26, and then to 18% from 2026/27.

Planning

Despite the changes, business owners and investors will be relieved that BADR and investors’ relief have not been abolished altogether. There is a tax planning opportunity for anyone intending to make a qualifying disposal in the near future.

• The 5 April 2025 deadline might be too tight to achieve the disposal of a business or investment, but any disposals made during 2025/26 will save 4% in CGT compared to if the disposal doesn’t happen until after 5 April 2026.
• Meeting these conditions, the maximum potential tax saving is £40,000.

One potential issue could be the required holding period. For investors’ relief, shares must have been held for three years prior to their disposal.