Budget impact on CGT & landlords

Impact of the Autumn Budget 2024 on CGT & Property Landlords

On October 30, 2024, Chancellor Rachel Reeves presented the Autumn Budget, introducing significant amendments to the Capital Gains Tax (CGT) framework, including adjustments to Business Asset Disposal Relief (BADR). These changes aim to enhance tax revenues and address economic challenges.

Understanding Capital Gains Tax (CGT)

Capital Gains Tax is levied on the profit realized from the sale or disposal of assets that have appreciated in value. This tax applies to various assets, including property (excluding primary residences), shares, and business assets. Prior to the recent budget, CGT rates were set at 10% for basic rate taxpayers and 20% for higher rate taxpayers, with residential property gains taxed at 18% and 28% respectively. The annual tax-free allowance stood at £3,000, having been reduced from £12,300 over the past two years.

Revised CGT Rates and Allowances

The Autumn Budget 2024 introduces an increase in CGT rates:

– Basic Rate Taxpayers: CGT rate increased from 10% to 18%.

– Higher Rate Taxpayers: CGT rate increased from 20% to 24%.

Notably, CGT rates on residential property disposals remain unchanged at 18% and 28% for basic and higher rate taxpayers, respectively. The annual tax-free allowance is maintained at £3,000. 

Business Asset Disposal Relief (BADR)

Formerly known as Entrepreneurs’ Relief, Business Asset Disposal Relief allows qualifying business owners to pay a reduced CGT rate on the disposal of all or part of their business. This relief was designed to encourage entrepreneurship by offering a 10% CGT rate on qualifying gains, subject to a lifetime limit. As of the 2023/24 tax year, the lifetime limit was set at £1 million.

Modifications to BADR

The budget outlines a phased increase in the CGT rate applicable under BADR:

– From April 6, 2025: The rate will rise to 14%.

– From April 6, 2026: The rate will align with the main lower CGT rate of 18%.

The lifetime limit for qualifying gains remains unchanged at £1 million. 

Implications for Business Owners and Investors

The incremental increase in CGT rates and adjustments to BADR are expected to impact business owners planning to dispose of their businesses or assets. While the immediate effect may be limited, the alignment of BADR rates with standard CGT rates by 2026 could reduce the tax advantages previously enjoyed by entrepreneurs. Stakeholders are advised to review their tax planning strategies in light of these changes.

Conclusion

The Autumn Budget 2024 introduces significant reforms to the CGT regime, including increased rates and modifications to Business Asset Disposal Relief. These measures reflect the government’s efforts to enhance tax revenues while maintaining support for business owners through a gradual adjustment period. Individuals and businesses affected by these changes should seek professional tax advice to navigate the evolving landscape effectively.

Impact of the Autumn Budget 2024 on Property Landlords

The Autumn Budget 2024, presented by Chancellor Rachel Reeves on October 30, introduces significant changes affecting property landlords in the UK. These measures aim to address housing market challenges and generate additional revenue for public finances.

Increase in Stamp Duty Surcharge

A notable change is the immediate increase in the stamp duty surcharge for additional property purchases, including buy-to-let investments and second homes. Effective October 31, 2024, the surcharge rises from 3% to 5% across all stamp duty bands. For instance, on properties valued between £250,001 and £925,000, the total stamp duty rate for landlords will now be 10%, up from the previous 8%. 

This adjustment is intended to level the playing field for first-time buyers and owner-occupiers, who often compete with landlords in the property market. The Treasury anticipates that this measure will facilitate approximately 130,000 additional transactions for primary residences over the next five years.

Capital Gains Tax (CGT) Rates Unchanged

Contrary to pre-Budget speculation, the Chancellor announced that CGT rates on the sale of residential properties will remain unchanged. Currently, CGT is charged at 18% for basic rate taxpayers and 28% for higher and additional rate taxpayers. This decision has been welcomed by landlords, as increases in CGT could have prompted a surge in property sales, potentially destabilizing the rental market.

Implications for the Rental Market

The increase in stamp duty may deter new investments in the buy-to-let sector, potentially exacerbating the existing shortage of rental properties. Industry representatives, such as the National Residential Landlords Association, have expressed concerns that higher acquisition costs could lead to a net loss of rental homes, thereby increasing pressure on rental prices. 

Conclusion

The Autumn Budget 2024 introduces measures that significantly impact property landlords, particularly through increased stamp duty on additional property purchases. While the decision to maintain current CGT rates provides some relief, the overall effect of these changes may influence investment decisions and the availability of rental properties in the UK housing market.