Capital Gains Tax Updates: Key Changes in 2024/2025 and What You Need to Know

CGT Rates: What’s Changed?

Prior to the Autumn Budget 2024, there were rumours that CGT rates might be aligned with income tax rates, but that did not come to fruition. Instead, the government introduced some notable changes:

• The basic rate of CGT has risen from 10% to 18%.
• The standard rate of CGT has increased from 20% to 24%.

These new rates mirror the pre-existing rates for residential properties. Importantly, the rate changes took immediate effect for disposals made on or after 30 October 2024. As a result, taxpayers in the 2024/25 tax year will need to deal with two different sets of CGT rates. HMRC has already provided supplementary self-assessment pages (SA108) for the year, but a calculator will be available to help taxpayers navigate these hybrid rates.

Impact of the End of the Furnished Holiday Lettings Regime

Starting 6 April 2025,the furnished holiday lettings (FHL) regime will cease to exist. This means properties previously treated as trades under FHL will be classified as standard rental properties. As a result:

• Capital allowances will no longer be claimable on dwelling areas.
• The income from these properties will no longer be pensionable.
• Business Property Relief (BPR) for inheritance tax purposes will not be available, although it was already difficult to claim in many cases.
• Importantly, CGT reliefs such as Business Asset Disposal Relief (BADR), rollover relief, and holdover relief will no longer apply to disposals of FHL properties from 6 April 2025.

However, if a property owner ceases their FHL business before 6 April 2025, they may still be able to sell their property and claim BADR within the next three years.

Changes to Business Asset Disposal Relief (BADR)

BADR, which provides a 10%CGT rate on qualifying gains, will undergo significant changes in the coming years:

• From 6 April 2025, the 10% rate for BADR will increase to 14%.
• From April 2026, the rate will rise again to 18%.

It’s worth noting that these changes will be implemented in line with the tax year, meaning that for part ofthe 2025/26 tax year, the 10% rate will still apply, even with the new CGTrates in place.

Changes to the Lifetime Limit for BADR and Investors’ Relief

As of March 2020, the lifetime allowance for BADR was £10 million. However, this has since been reduced to £1 million, and those who had previously claimed relief beyond that amount will see it effectively abolished.

Investors' relief, the equivalent of BADR for business angels (with the condition that the investor is not an officer or employee of the company), also had a lifetime limit of £10 million. This limit will drop to £1 million as of 6 April 2025. Investors need to be aware of this reduction as the £10 million cap has been in place since the inception of the relief.

BADR and Interest in Possession (IIP) Trusts

Trustees of Interest in Possession (IIP) trusts can also claim BADR if the life tenant is operating the business that holds the trading company shares or assets. The life tenant must be a qualifying beneficiary at the time of the asset sale. A recent Court of Appeal ruling in the case of Quentin Skinner 2015 Settlement v HMRC[2022] EWCA Civ 1222 confirmed that the life tenant only needed to qualify as such at the time of sale — not two years prior, as HMRC had previously insisted.

Practical Tip: What to Watch for in 2025

The upcoming changes to CGT in April 2025 mark a significant shift, particularly for the furnished holiday lettings regime and the various reliefs available for disposals. However, be mindful that CGT rates have already changed for disposals after 30 October 2024. With two sets of CGT rates in play for the 2024/25 tax year, planning ahead will be essential.

Additionally, for those looking to take advantage of Investors’ Relief, the reduction in the lifetime limit from £10 million to £1 million may easily be overlooked, especially as this cap has been in place since the relief’s inception.

Stay informed and plan yourdisposals and tax strategies accordingly to make the most of these evolving tax rules.

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