Our guide to the Capital Gains Tax Budget update
Released On 13th Jan 2025
The recent Budget has introduced changes to Capital Gains Tax (CGT) and the taxation of carried interest, aiming to ensure asset owners contribute a fair share while maintaining the UK’s international tax competitiveness.
What impact will these changes have and how can they be managed effectively?
Capital Gains Tax rate adjustments
The lower CGT rate has increased from 10 per cent to 18 per cent, and the higher rate from 20 per cent to 24 per cent.
This aligns CGT rates on most assets with those applicable to residential property, which remain unchanged.
These adjustments represent a major change for investors and business owners.
It is a time to reassess investment strategies and consider using tools like reliefs and allowances to optimise your tax position.
So, what reliefs and allowances are available?
Annual Exempt Amount (AEA)
While the AEA has been reduced in recent years, individuals can still offset £3,000 of their gains tax-free (£6,000 for married couples or civil partners who can transfer assets between them).
Business Asset Disposal Relief (BADR)
Despite the rumours, BADR was not removed in the Budget. The current rate of 10 per cent remains in place for the remainder of this tax year. From 6 April 2025, gains qualifying for BADR will be taxed at 14 per cent.
The rate increases again from 6 April 2026 to 18 per cent. With the increase in the main rates of CGT taking immediate effect, the current rate of BADR of 10 per cent represents a significant reduction in the CGT rate. If you have assets which may qualify for BADR, you should seek advice as soon as possible.
Spousal transfers
Transferring assets between spouses or civil partners before disposal can reduce overall tax liability by utilising both partners’ allowances and potentially accessing lower tax rates.
Bed and ISA or Bed and SIPP strategies
Selling assets and repurchasing them within an Individual Savings Account (ISA) or Self-Invested Personal Pension (SIPP) can shield future gains from CGT. You should ensure you get advice before taking this step as there may be CGT liabilities triggered by these initial disposals.
These are just some of the strategies available to help combat changes to CGT rates.
We can help advise on how to implement them plus offer more advice for individuals that need it.
Reforms to carried interest taxation
Carried interest – the profit share received by fund managers – will undergo notable tax changes. From April 2025, the CGT rate on carried interest will rise to 32 per cent.
As of April 2026, carried interest will be taxed as income, potentially leading to higher tax liabilities for recipients.
The reclassification of carried interest as income marks a substantial change for fund managers.
This calls for a thorough review of compensation structures and tax planning strategies to adapt to the new regime.
Changes affecting Limited Liability Partnerships (LLPs)
Previously, LLPs could transfer assets within the partnership tax-free until liquidation. However, from October 2024, assets contributed to an LLP will be taxable.
LLPs must now carefully evaluate the tax implications of asset contributions, reassess their structure’s suitability, explore alternative options, and plan for potential cash flow needs.
Accurate valuations and regular tax reviews are central to adapting to these changes and avoiding unforeseen liabilities.
We are committed to helping you understand and adapt to these changes, ensuring your financial strategies remain compliant.
