CGT hike not as bad as feared

As predicted Rachel Reeves hiked Capital Gains Tax (CGT) – however the changes she announced were less drastic than many had feared.

CGT is tax on any profits or gains you make when you dispose of an asset. Assets not only apply to the sale or exit of business but can also apply to the sale of items such as offices and trademarks. Even the goodwill built up by your company could ultimately be taxable.

The chancellor announced that the lower capital gains tax rate will be increased to 18 per cent from 10 per cent, while the higher rate will climb to 24 per cent from 20 per cent. The changes are expected to bring in £2.5billion for the Treasury.

However, she maintained the £1m lifetime limit on capital gains from the sale of all or part of a company under business asset disposal relief (BADR).

BADR will remain at 10 per cent this year, before rising to 14 per cent in April 2025, and to 18 per cent from 2026/27

The chancellor stressed that this still represented a “significant gap compared to the higher rate of capital gains tax.”

There were pre-Budget fears that hiking the rate would deter investment, not only in large businesses but in SMEs. Tech entrepreneurs were also worried about the future of BADR.

The Federation of Small Businesses (FSB) was among those that campaigned hard to retain entrepreneurs’ relief, which was under significant threat.

Many commentators called for it to be scrapped, which would have resulted in entrepreneurs paying the full rate of CGT.

In a post-Budget statement, the FSB said: Although the rate will gradually rise, it’s welcome that FSB’s campaigning has led to a discounted rate being kept, with a clear differential.

“This is really important for small business owners who have been planning to sell their businesses for their retirement in place of a pension.”

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