QUESTION: As I approach my 60th year in 2025, I am thinking about selling my business and some investment properties I own. What are some of the changes to capital gains tax following October Budget and how might they affect me?
ANSWER: The Budget on October 30 brought significant changes to the taxation of capital gains, which aim to increase government revenue by targeting wealth generated from investments and asset sales. If you own shares, a second home, or other investments, it’s crucial to understand how these changes will affect you.
The most immediate and important change is the increase in capital gains tax (CGT) rates:
1 Basic-rate taxpayers - The lower CGT rate has risen from 10% to 18% for disposals made on or after October 30 2024.
2 Higher and additional rate taxpayers - The upper CGT rate has increased from 20% to 24%.
This change aligns CGT rates more closely with those applied to residential property sales, which remain at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers.
In the spring budget in March, Chancellor Jeremy Hunt announced a reduction in the higher rate of capital gains tax on residential property disposals. This rate decreased from 28% to 24%, effective from April past.
The annual CGT tax-free allowance has already seen reductions in recent years, and no further changes to this allowance were announced in the latest Budget.
However, it’s worth noting that the allowance was reduced to £6,000 per person in April 2024 and is scheduled to drop further to £3,000 in April 2025. This means that more people will find themselves liable for CGT, even on relatively modest gains.
Business asset disposal relief and investors’ relief are designed to encourage entrepreneurship and long-term investments and the big changes announced on Budget day include :
1. Business Asset Disposal Relief (formerly Entrepreneurs’ Relief): The rate of tax on qualifying gains will increase from 10% to 14% starting April 2025 and rise again to 18% in April 2026.
2. Investors’ Relief: The lifetime allowance for gains eligible for this relief has been reduced to £1 million for disposals made on or after 30 October 2024.
These changes make it more expensive for business owners and investors to sell their assets, particularly those who have relied on these reliefs for significant tax savings.
The lifetime allowance for business asset disposal relief remains at £1 million. This cap was reduced from £10 million in 2020 and was not further decreased in the recent Budget. However, the higher rates of tax on gains mean that the relief is less advantageous for business owners compared to previous years.
With the immediate introduction of an increase in the main rate of capital gains tax from 20% to 24% coupled with the preferential rate set to rise from 10% to 14% in April 2025 and to 18% by April 2026, there could be a flurry of business sales prior to next April to avail of the 10% capital gains tax rate.
Malachy McLernon (malachy.mclernon@aabgroup.com) is partner at AAB Group Accountants Ltd (www.aabgroup.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies
