Autumn Budget 2024: What CGT Changes to Expect

PM Starmer Warns of Painful Fiscal Plan, but Chancellor Reeves Rejects Austerity: Hard but Fair Choices Await in the 30th October 2024 Budget to Address £22 Billion Shortfall

By Mohammad Rahaman, XLN Accountants Ltd

As the Autumn Budget on 30th October 2024 approaches, expectations are growing around potential tax changes. Key areas likely to see shifts include national insurance, capital gains tax (CGT), and inheritance tax. In this article, we’ll focus on capital gains tax. We will discuss the potential changes that could be introduced in the upcoming budget.

What is Capital Gains Tax (CGT)?

Capital gains tax (CGT) is a tax on the profit made from selling assets. This includes property, shares, or investments. It applies when their value has increased since purchase. Importantly, CGT is levied only on the gain, not the total sale price. For example, suppose you bought a property for £200,000. If you sold it for £300,000, you’d pay CGT on the £100,000 profit.

Both individuals and businesses are subject to CGT. The rates vary based on asset type and the individual’s tax bracket. For residential properties, basic rate taxpayers pay 18%, while higher-rate taxpayers face a 28% rate. For other assets, the rates drop to 10% and 20%, respectively. However, changes in the Autumn Budget may alter these rates.

Potential Changes to CGT Rates

There is speculation that the government may align CGT rates with income tax. Some reports suggest CGT could rise to 39%, closely aligning with the 45% income tax rate for higher earners. The Office of Tax Simplification (OTS) previously recommended aligning these rates to simplify the system and boost government revenue. If this happens, individuals selling high-value assets like property or business shares could face significantly higher tax liabilities.

How CGT Impacts Your Finances

Though CGT may seem distant to many, it affects those regularly dealing with property or investments. Homeowners selling second properties, investors cashing in shares, or anyone selling valuable personal assets could face substantial tax bills. This potential rise in CGT could also heavily affect businesses. This is especially true for property developers or investment firms that rely on asset sales for revenue. If the rate increases, it might lead to reduced profits and could force businesses to reconsider their long-term strategies.

Business Reliefs and Capital Gains Tax

There are various reliefs available to reduce or defer CGT. Entrepreneurs’ Relief allows individuals selling their businesses or shares to pay a reduced CGT rate of 10% on gains. This applies up to £1 million over their lifetime. This relief encourages investment and entrepreneurial activity. However, these reliefs could also be revised in the upcoming budget, potentially limiting their benefits for business owners and investors.

Preparing for Potential Changes

With the Autumn Budget looming, it’s crucial for individuals and businesses to prepare for any adjustments to CGT. Effective tax planning is more important than ever, especially for those considering selling significant assets or exiting their businesses. Seeking professional advice can help minimize tax liabilities and avoid surprises.

In summary, while we await the specific details of the budget, the potential increase in CGT rates could be significant. The increase could reach as much as 39%. This change could have far-reaching effects. Staying informed and proactive will be essential for navigating these changes effectively.