Capital Gains Tax changes from 6 April 2025 – it’s important to get the timing right

Following the Capital Gains Tax announcements in the Autumn Budget, we look at the impact of the changes before these take effect at the end of the tax year.

Whenever there’s a change of Capital Gains Tax rules, the timing of a particular business asset disposal can have an impact on which tax year that the disposal falls in which can have a knock-on effect on the rate of tax and the timing of the tax payment. 

The 2024/25 tax year is no different to any other in that respect, however there are additional considerations for accountants and tax advisers to consider. This includes the Autumn Budget changes taking immediate effect for transactions on or after 30 October 2024, such as the increase in the Capital Gains Tax rates for gains not covered by Business Asset Disposal Relief (BADR). Gains not covered by BADR are subject to an immediate increase on Budget Day to 18% (for gains within the UK basic rate income tax band) and/or 24% (on any remaining gains). 

The approach of the end of the tax year has further complications this year due to the abolition of the Furnished Holiday Lettings (FHL) rules and the upcoming increase in the tax rate for gains covered by BADR. 

Normal considerations 

Section 28 TCGA 1992 outlines the normal position regarding the timing of disposal. This is normally when an unconditional contract has been completed, rather than the completion date (if different). Where the contract is conditional on an event taking place, then the disposal is treated as having taken place once the condition has been satisfied. Therefore, if a taxpayer has entered a contract which concludes in March 2025 but is completed in late April 2025, this will be treated as a disposal in the 2024/25 tax year. If there was a condition that wasn’t satisfied until completion, then it would be classed as a 2025/26 disposal. 

In the case of a property disposal in Scotland, the disposal would normally be treated on the date that the legal missives are concluded. It’s important to remember that any Capital Gains Tax on the sale of UK residential property must be reported to HMRC within 60 days of the completion date. 

Where the disposal has been in the form of a gift, then the date of disposal will be based on when beneficial ownership passes. 

Abolition of Furnished Holiday Letting (FHL) rules 

HMRC has recently updated its Capital Gains Tax manual on the impact of the FHL rules being withdrawn from 6 April 2025. 

For BADR purposes, if the FHL conditions are satisfied in respect of a business that ceased before 6 April 2025, relief may still be available on a disposal within the normal three-year period for cessation. This will be relevant for properties owned by individuals who cease their FHL business, as well as the disposal of shares in companies carrying out a FHL business (subject to other criteria). The policy paper  on FHL has however confirmed that there needs to be an actual cessation and that the abolition of the FHL regime doesn’t in itself constitute a cessation of the FHL business. 

Where a FHL property has been gifted, the reference to Section 241(3) TCGA 1992 will be removed from Section 165A TCGA 1992 for Holdover Relief purposes. This means that the gift of a FHL property by an individual will be subject to Capital Gains Tax going forward.

To avoid Capital Gains Tax being payable on gifts in future years, consideration of the use of a trust as an intermediary (and claiming Holdover Relief under Section 260 TCGA 1992 instead) would be a possibility - although there are much wider considerations to be explored before entering into a trust. 

A FHL property owned by an individual or company will be treated as a qualifying asset for Rollover Relief under Section 152 TCGA 1992 before 6 April 2025 (individuals) or 1 April 2025 (companies). This could cause issues where a claim has been made, or provisionally made, but the purchase of the replacement property hasn’t taken place before the abolition of the FHL rules. 

Where arrangements have been made to create a tax advantage through securing FHL capital gains relief, there are anti-forestalling rules which apply in respect of transactions on or after 6 March 2024 to prevent relief being available. However, it’s pleasing to see that these rules shouldn’t apply to genuine commercial transactions or transactions that aren’t between connected parties (provided that the contract was entered into for commercial reasons).  

Increase in tax rate for BADR gains 

The lifetime limit for gains covered by BADR wasn’t increased (despite it applying on gains from 2008) and the Autumn Budget reduced the lifetime limit for Investors Relief from £10 million to £1 million for qualifying disposals made on or after 30 October 2024. The Chancellor also announced an increase in the Capital Gains Tax rate for gains covered by BADR or Investors Relief from the current 10% to 14% from 6 April 2025 and 18% from 6 April 2026.
  
The Finance Bill includes anti-forestalling rules to override the normal rules for the timing of disposals, for contracts where there’s an unconditional contract made on or before 30 October 2024 but concluded after that date. Where the anti-forestalling rules apply, the date of completion will substitute the normal position in Section 28 TCGA 1992. Genuine commercial transactions should be unaffected by these rules. 

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