Capital gains tax changes: Action may be required by 5 April for business disposals
October’s Government Budget increased capital gains tax (CGT) rates, with the headline change for shareholders in private, family and owner-managed businesses being the rise of Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) from the current 10% to 14% from 5 April 2025, and increasing again to 18% from 6 April 2026.
Alongside the BADR and IR increases, there were also two key ‘anti-forestalling’ rules implemented which are intended to restrict the circumstances in which taxpayers can structure transactions to avoid the impact of the changes.
If you have sold shares, exchanged a set of securities, or shares have been subject to a capital reorganisation since 6 April 2023, you may be impacted and required to take action by 5 April 2025. Similarly, if you have plans to dispose of business assets imminently, care should be taken to ensure tax is reported and paid correctly.
Impact depending on timing of disposal
For disposals between 6 April 2023 and 5 April 2024, you would ordinarily have until 31 January 2026 to make the election to opt out of the Capital Gains Tax rollover provisions and crystallise the capital gain in the 2023/24 tax year. However, the Budget has made changes so an election may need to be made by 5 April 2025 instead. The shorter time limit applies in the following two situations:
- Transactions between 6 April 2023 and 29 October 2024: where certain conditions apply (broadly, that the buyer and seller have some form of connection), the disposal date for capital gains tax purposes will be the date the election is made to ignore the rollover.
- Transactions between 30 October 2024 and 5 April 2025: the disposal date for capital gains tax purposes will be the date the election is made to ignore the rollover.
The first situation is intended to counter artificial transactions which were designed only to create a Capital Gains Tax disposal. However, the second applies to all transactions.
Note that an election may still be made within the normal two-year period but the tax rate will then be the 14% or 18% rate in force at the time of the election.
Unconditional contracts
Where an asset is transferred after Budget Day as a result of an unconditional contract which was entered into before 30 October 2024, the lower pre-Budget Day CGT rates (10% or 20%) only apply if, broadly, the contract was entered into for genuine commercial reasons. Such contracts are unusual and are targeted because they have been used to accelerate the tax date of disposal in the past.
Action required
If a taxpayer wishes to elect to ignore rollover relief provisions and qualify for the 10% tax rate in relation to any share transactions covered by the anti-forestalling rules, it is essential that the election is made by 5 April 2025.
Where an election is made, it applies to all your securities and cannot be applied to only one part of the consideration. In effect, you crystallise and will be liable to pay the CGT arising on the entire transaction. The election therefore accelerates payment of the CGT although the tax is obviously payable at a lower rate.
We are here to help
The CGT rules are complex and there may be adverse implications if you do not take action by 5 April 2025. If you think you are affected by the above changes and may wish to make the election, please get in touch with a member of the private client team via the form below or contact your usual Azets advisor.