The changes to capital gains tax (CGT) announced in the Autumn Budget are subject to anti-forestalling rules designed to prevent taxpayers from circumventing the new rates and rules.
In the Autumn Budget the Chancellor announced an immediate increase to the main rates of capital gains tax (CGT). From 30.10.24, ‘Budget Day‘, CGT is payable on the disposal of non-residential property at 18% (up from 10%) for gains falling into the taxpayer’s basic rate band and 24% (up from 20%) at the higher or additional rate.
To prevent taxpayers from pre-empting the increase by using unconditional contracts to secure the previous rates, a number of anti-forestalling provisions were introduced.
Generally, where a disposal is made under an unconditional contract, CGT is due at the rates prevailing on the date the contract is signed, not when the asset is transferred. However, where an unconditional contract was entered into before Budget Day and completion took place on or after that date, the new CGT rates will apply unless:
- the taxpayer confirms in their return that the transaction was not entered into with the purpose of securing the pre-Budget Day CGT rates; and
- where the parties to the contract are connected, the disposal was wholly for commercial purposes.
If you have made a disposal that straddles 30.10.24 and you wish to apply the old rates of CGT, you might need to provide HMRC with evidence that the above conditions have been met. We can help you with this.
Also announced on Budget Day with immediate effect was a reduction in the lifetime limit for investors’ relief from £10m to £1m. The same anti-forestalling rules apply in determining whether the old or new lifetime limit applies to a disposal qualifying for the relief.
Although the lifetime limit for business asset disposal relief (BADR) remains at £1m, the Chancellor announced increases to the favourable rates applying to disposals qualifying for BADR and investors’ relief which will apply from 6.4.25 and 6.4.26.
Where the ‘rollover’ of a share reorganisation occurs automatically, this can work against the taxpayer if the old shareholding is eligible for BADR or investors’ relief but the new one is not. In these circumstances the taxpayer is permitted to elect out of rollover relief and crystallise the gain at which the old shares are standing to use up their entitlement to BADR or investors’ relief in respect of the shares before it is lost. This will be relevant for anyone who exchanged shares for other shares, potentially in a buy out or merger, since April 2023.
Anti-forestalling measures will prevent taxpayers from avoiding the new rates and rules by electing to trigger gains on historical share reorganisations or exchanges. Urgent attention should be given to this, contact us to discuss how these changes could impact you.