The 2024 UK budget introduced a key adjustment to Capital Gains Tax (CGT) that directly impacts business owners, property investors, and those considering future sales of significant assets. The aim? To bring in more tax revenue from the sale of property, shares, and business assets. For business owners and property investors, this change has created a new landscape in which strategic planning and a long-term approach can mean the difference between a substantial CGT bill or a tax-efficient future.
In this article, we’ll break down the key CGT changes, explore their implications for business owners and investors, and explain why taking a long-term approach can help you minimise the tax hit when it comes time to sell. At Acorn.finance, we specialise in helping business owners make informed financing decisions and structure their ventures to maximise profitability, so understanding the impact of these tax changes on potential sales or transfers is essential.
What Changed in CGT in the October 2024 budget?
Capital Gains Tax, the tax levied on profits made from selling certain types of assets, has long been a significant factor for business owners and investors alike. Rachel Reeves’ first budget brought in specific adjustments that affect anyone planning to sell or transfer ownership of property or business assets in the near or distant future.
Key Changes in the 2024 Budget:
• Higher CGT rates for property and asset sales above a certain threshold. For properties, CGT rates have increased from 18% to 20% for basic rate taxpayers and from 28% to 30% for higher rate taxpayers.
• Reduced CGT-free allowance: The annual CGT exemption allowance, previously £6,000, has now been reduced to £3,000, meaning investors and business owners will pay CGT on a greater portion of their gains.
• Extension of reporting requirements: Now, individuals must report and pay CGT within 30 days of the sale of residential property, tightening the timeframe for cash flow planning and tax reporting.
CGT Impact on Business Owners
For business owners, CGT changes add an extra layer of consideration when planning to sell or transfer their enterprise. Entrepreneurs who’ve put years of work into building a successful business will naturally want to maximize the benefits of a sale. The new CGT adjustments, however, could eat into the profits of that sale if not planned effectively.
Case Study: Joe, a Small Business Owner Looking to Sell
Joe has run his small manufacturing company for 20 years and plans to retire within the next five years. Given the recent CGT changes, his advisor at Acorn.finance has outlined potential strategies he can use to maximise his net returns when he eventually sells.
• Timing of Sale: Joe’s advisor suggests staging some transfers or sales over multiple tax years to make use of his annual CGT allowance each year.
• Considering Business Asset Disposal Relief (BADR): Previously known as Entrepreneurs’ Relief, BADR can significantly reduce CGT on the sale of qualifying business assets. Joe may be eligible, meaning a tax rate of 10% on gains up to £1 million, rather than the full rate.
• Income Splitting with Family: By transferring some ownership to a spouse or family member, Joe could split the CGT burden and use both annual CGT allowances for a lower overall tax hit.
With a clear, long-term approach, Joe stands to save a considerable amount in CGT, leaving him with more post-sale capital for retirement or reinvestment.
CGT Impact on Property Investors
For property investors, the 2024 CGT changes add to the cost of buying, holding, and eventually selling properties, particularly those not used as a primary residence. Given the new rates, property investors should assess their portfolios to determine which assets offer the best post-CGT return on investment.
Example: Emily, a Buy-to-Let Property Investor
Emily owns a portfolio of buy-to-let properties valued at around £1 million. She’s been considering selling some of her older, less profitable properties. The CGT changes mean:
• Higher CGT on Sale: If Emily decides to sell a property with £100,000 in gains, she now faces a 30% CGT rate (for higher rate taxpayers) rather than 28%, adding an additional £2,000 to her tax burden.
• Reduced Annual Exemption: With her exemption allowance now only £3,000, Emily will pay CGT on a larger portion of her gains.
At Acorn.finance, advisors suggest that property investors like Emily consider the following strategies to maximize returns:
• Portfolio Restructuring: By periodically reviewing and potentially selling lower-yield properties, Emily can ensure her portfolio remains efficient and profitable even after tax.
• Considering Commercial Property: Commercial properties, which can benefit from different tax treatments, may offer a tax-efficient way to diversify her portfolio.
The Long-Term View: How to Approach Future Business Sales and Investments
When it comes to selling a business or investment, taking a long-term view is now more essential than ever. Planning well in advance allows business owners and property investors to prepare for tax changes, maximize CGT allowances, and structure their assets to minimize tax exposure.
Why a Long-Term Approach Helps:
• Optimising CGT Allowances: By spreading asset sales over multiple years, business owners and investors can make better use of their annual CGT-free allowances, which are small but can add up when strategically applied.
• Building a Tax-Efficient Structure: Business owners planning to sell should consider forming tax-efficient structures to mitigate CGT on transfers.
• Planning for Reliefs and Exemptions: Planning years ahead allows you to maximise available CGT reliefs, such as BADR, and avoid selling during high-tax years.
Steps for Business Owners Considering a Future Sale
1. Assess Business Valuation: Work with advisors to understand what your business might be worth in the current market.
2. Evaluate CGT Implications on Exit Strategies: Plan the timing and structure of your business exit to take advantage of reliefs like BADR, if eligible.
3. Consider Successor Planning: Handing over a portion of the business to family or co-owners can help to lower CGT exposure by spreading ownership and using multiple allowances.
Steps for Property Investors Managing CGT
1. Review Your Portfolio for Efficiency: Selling lower-yield properties in higher tax years can diminish returns, so careful planning is key.
2. Explore Commercial Investments: At Acorn.finance, we help investors secure funding for commercial and semi-commercial properties, which may offer better tax efficiency and potentially higher yields.
3. Plan Purchases with Future Sales in Mind: For long-term investors, selecting properties with higher appreciation potential, even if they’re not primary residences, can maximize gains despite higher CGT.
How Acorn.finance Supports Business Owners and Investors
At Acorn.finance, we understand that CGT is only one part of the bigger picture when it comes to financing, investing, and exit planning. We work closely with clients to navigate both short-term tax liabilities and long-term wealth preservation. Our approach centres on creating financial strategies that align with personal goals, whether those involve reinvesting in a new venture, preparing for retirement, or diversifying into new asset classes.
Conclusion
The 2024 CGT changes bring new challenges but also emphasise the importance of strategic, long-term planning. For business owners and property investors alike, adapting to these changes with a proactive approach can protect more of your hard-earned gains. While CGT increases might narrow margins on sales, a thoughtful, long-term view can help you plan effectively, manage risks, and capitalise on available reliefs.