As we move into the 2024/25 tax year, significant updates to Capital Gains Tax (CGT) regulations are impacting both individual taxpayers and business owners. Whether you're selling shares, property, or business assets, it's crucial to stay informed on the latest rules to manage your liabilities effectively.
At Strat Finance Solutions, we aim to help you navigate the complexities of the ever-evolving tax landscape and ensure your tax planning is optimized to avoid unnecessary costs. Here are the key updates and considerations for CGT in the current tax year.
Current Capital Gains Tax Rates
For the 2024/25 tax year, CGT continues to be applied at two primary rates, depending on your income tax bracket:
- Basic-rate taxpayers: Pay 10% on asset gains and 18% on residential property gains.
- Higher-rate taxpayers: Pay 20% on asset gains and 24% on residential property gains.
These rates apply once your total capital gains exceed the CGT allowance, which has been reduced to £3,000 this year. Any gains beyond this threshold are subject to the above rates, meaning more individuals and businesses are likely to face CGT compared to previous years.
Key Changes and Upcoming Reforms
Several proposed reforms could further impact how CGT is calculated, especially for higher earners and business owners:
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Reduction of CGT Allowance: The tax-free allowance has seen a notable reduction to £3,000, down from previous higher amounts. This makes tax planning even more important, as it will increase the taxable portion of your gains if you're selling property, shares, or business assets.
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Business Asset Disposal Relief (BADR): While currently allowing for a 10% tax rate on the first £1 million of gains when selling your business, there is ongoing speculation that this relief could be reduced or removed, affecting business owners looking to sell or retire.
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Potential Alignment with Income Tax: Some proposals suggest CGT rates could be aligned with income tax rates, which would significantly increase the burden on higher-rate taxpayers. If implemented, this could raise the rates for higher earners to 40% or more.
What Does This Mean for You?
If you’re planning to sell assets—whether it’s a second property, shares, or business holdings—now is the time to reassess your position and consider taking action before further reforms are introduced. Proper planning can help reduce your tax liability, particularly if you take advantage of current reliefs like BADR.
For example, if you’re selling shares, here’s how the numbers might look under the current rules:
Example:
Imagine you've sold shares and made a £25,000 profit. As a basic-rate taxpayer, after applying the £3,000 CGT allowance, your taxable gain is £22,000. Adding this gain to your taxable income, if it stays within the basic rate band, you'll pay 10% on the gain, or £2,200. For higher-rate taxpayers, that same gain would attract 20%, or £4,400.
This illustrates the importance of understanding your tax bracket and making full use of available allowances.
Next Steps for Effective Tax Planning
With ongoing discussions around capital gains tax reforms, it’s essential to stay ahead of potential changes. At Strat Finance Solutions, we can help you develop a tailored tax strategy that ensures your assets are managed efficiently and your tax liabilities are minimized. Whether you’re looking to sell property, shares, or a business, our team is here to provide the expert advice you need.
Stay informed, plan ahead, and contact us today to discuss how the latest CGT changes might affect your financial strategy.
For professional advice and tailored solutions, reach out to us at StratFinance Solutions today.
