Capital Gains Tax: The New Rates

Individuals with capital gains from investments or property sales, property owners and investors, and financial advisors and tax planners.

Clarifying the upcoming changes to the Capital Gains Tax (CGT) rates, the reduction in the tax-free allowance, and the available exemptions and reliefs to reduce CGT liabilities.

Understanding the new CGT rates and how the reduction in the tax-free allowance will impact taxpayers is crucial for tax planning. This page helps individuals, property owners, and investors plan effectively to reduce CGT exposure and ensure compliance with the new rules starting in 2026.

New CGT Rates and How They Apply

Capital Gains Tax rates have increased for disposals from 30 October 2024, with further changes ahead. Stay informed on the updated rates for assets, property, and reliefs to optimise your tax planning.

We would like to remind our readers of the updated Capital Gains Tax (CGT) rates that apply to gains realised on or after 30 October 2024. The main CGT rates for assets other than residential property and carried interest has increased to 18% (from 10%) for Income Tax basic rate payers, and to 24% (from 20%) for Income Tax higher rate payers.

For trustees and personal representatives, the CGT rate will has also increased to 24% (from 20%) for disposals made on or after 30 October 2024. The CGT rates for residential property disposals (18% and 24%) remain unchanged.

The CGT rate for Business Asset Disposal Relief and Investors’ Relief will increase from 10% to 14% for disposals made on or after 6 April 2025. A further increase to 18% will apply for disposals made on or after 6 April 2026. The lifetime limit for Business Asset Disposal Relief remains unchanged at £1 million, but the lifetime limit for Investors’ Relief will be reduced from £10 million to £1 million for qualifying disposals made on or after 30 October 2024. Special provisions apply to certain contracts entered into before 30 October 2024.

Additionally, the normal and higher rates of CGT on carried interest (currently 18% and 28%, respectively) will rise to a single unified rate of 32% from 6 April 2025. From April 2026, carried interest will be subject to a broader package of policy changes, which will be announced at a later date.

Reduction in the Tax-Free Allowance and Its Impact

From April 2026, the annual tax-free allowance for CGT will reduce, affecting individuals with substantial capital gains. The key changes include:

• The annual exempt amount of £12,300 will decrease.
• Individuals who had more significant tax-free gains will face higher CGT liabilities.
• Proper planning is essential to manage CGT liabilities before the reduction takes effect.

Taxpayers need to act now to plan for the reduction in the tax-free allowance and avoid unnecessary CGT liabilities.

Exemptions and Reliefs to Reduce CGT Liabilities

Several exemptions and reliefs can help reduce CGT liabilities:

• Private Residence Relief (PRR): If you sell your primary residence, you may qualify for PRR, which can exempt you from CGT on the gain.
• Letting Relief: If your property has been rented out, Letting Relief may reduce your CGT liability on the sale of the property.
• Gift Relief: If you give an asset as a gift, CGT may be deferred until the asset is sold by the recipient.

Taking advantage of these reliefs can significantly reduce CGT exposure and help minimize tax burdens before the tax-free allowance reduction.

Risks and Consequences of Not Planning for the CGT Changes

If the CGT reduction and new rates are not planned for correctly, the following risks may arise:

• Increased CGT liability: The reduction in the tax-free allowance could lead to higher tax bills if asset disposals are not properly planned.
• Missed tax planning opportunities: Failure to utilise exemptions and reliefs can result in higher CGT exposure.
• Penalties: Incorrect CGT reporting on tax returns could lead to penalties from HMRC.

It is critical to start planning for the new CGT rules to avoid these consequences and manage potential risks.

Real-World Application

Real-world scenarios where these CGT changes will have an impact include:

• Selling residential property: Property owners must understand how the new CGT rates apply to property sales and the impact of the reduced tax-free allowance.
• Investment portfolios: Investors need to plan for the tax treatment of gains from stocks, bonds, and other assets under the new CGT rates.
• Tax planning strategies: Ensuring that individuals and businesses use available reliefs, exemptions, and timing strategies to minimise CGT exposure.

Effective planning can help reduce CGT liabilities and ensure compliance with new tax rules.