All change for Capital Taxes on Business

The Autumn Budget of 2024 has made some significant changes to the way capital taxes impact business assets. In this article we will look at the main changes and the impact on tax planning for businesses going forward.

The changes to capital gains tax (CGT) will have a significant effect on the amount of CGT payable on the disposal of business assets. (Please note that furnished holiday let businesses are treated differently and are not included in the comments below)

• Increased in CGT rates generally
• Changes to business asset disposal relief (BADR)

The main rates of CGT have risen from 10%/20% to 18%/24% with effect from Budget day on 30 October 2024. The lower rate in each case applies for so much of the gain as falls within your basic rate band and the remainder of the gain is taxed at the higher rate. This brings the general rate of CGT in line with residential property gains, which have not changed.

Whilst this is not as high as some commentators were predicting, its immediate application makes no room to manoeuvre so that, unless you had exchanged unconditional contracts before Budget Day, the new rates will now apply.

Business asset disposal relief can provide for a lower rate of tax for the time being and leaves some scope to plan. The existing 10% on the first £1 million of gains from the disposal of a business remains until 5 April 2025 when the rate rises to 14%. The rates will then rise to 18% on 6 April 2026. Whilst this final rate represents a small discount compared with the top rate of 24%, it is now much less generous.

This means that if you are looking to sell your business it may be beneficial to do so sooner rather than later. Trying to sell a business in a few months may be unrealistic but if you can get to the point of an exchange of unconditional contacts that will fix a tax point.

The inheritance tax (IHT) payable on business assets will also change with effect from 6 April 2026, so we have a little time to make adjustments where possible.

At the moment, interests in trading business are effectively exempt for IHT by way of business and agricultural property relief at 100%, so a business can be passed from one generation to the next without an IHT impact.

Relief for business and agricultural property will be restricted from 2026. Thereafter the first £1 million will continue to attract 100% relief as at present but thereafter the relief is limited to 50%. For example, a business worth £5 million will attract business relief of £3 million leaving £2 million in charge to tax. This will have significant impact for any business which is based around property as these limits are easily reached if the business uses land and buildings. The farming community will be particularly hit but so will hotels and factories, for example, which typically have a significant asset base.

Historically, business and agricultural assets were generally best passed on through the business owners’ Will on death. This change in relief will push people to consider moving assets during lifetime, where the transfer can be tax free provided the giver survives at least seven years from the date of gift. Making lifetime gifts of business assets can also be CGT free by making an election to holdover the gain, but this means that the successor acquires the property at the givers’ base cost and not market value, as currently applies on death inheritances. Particular care is needed to ensure any lifetime gift is not subject to the gift with reservation rules.

Whilst there is no need to act in haste, now is a good time to consider the future of your business and how to plan for succession or onward sale.

The Budget measures have not passed into legislation at the time of writing and therefore these provisions may yet be subject to change.