With the new Labour government ruling out increases in Income Tax, National Insurance, and VAT, the focus may shift to Capital Gains Tax (CGT). Understanding the historical rates and reliefs can help you make informed decisions when reviewing your future plans and whether now is the right time exit your business?
Capital Gains Tax Rates
Since 1965, CGT rates have varied significantly:
| Period | Rate |
| 1965-1988 | Flat 30% |
| 1988-2008 | Income tax rates of up to 40% |
| 2008-2010 | Flat rate of 18% for all taxpayers |
| 2010-2016 | 18% for basic rate taxpayers, 28% for higher/additional rate taxpayers |
| 2016-Present | 10% for basic rate taxpayers, 20% for higher/additional rate taxpayers on non-property disposals |
Reliefs on Business Disposals
Over the years, various reliefs have been introduced to alleviate the CGT burden on the disposal of business assets. These reliefs have evolved to reflect changing economic conditions and policy objectives.
Business Asset Disposal Relief (BADR)
Formerly known as Entrepreneurs’ Relief, BADR allows for a reduced CGT rate of 10% on qualifying business disposals, with a lifetime limit of £1 million as of March 2020. The relief applies to gains made from selling all or part of a business, shares in a personal company, or assets used in a business. This significant tax break is crucial for entrepreneurs looking to retire or move on to new ventures.
Entrepreneurs’ Relief (ER)
Before being renamed to BADR in 2020, Entrepreneurs’ Relief was available for business disposals. Introduced in 2008, it provided a 10% CGT rate on up to £10 million of lifetime gains. This relief aimed to encourage entrepreneurship and long-term business investments by offering substantial tax savings on the sale of qualifying business assets.
Taper Relief
Taper Relief was in effect from 1998 to 2008. It reduced the CGT payable based on the length of time the asset was held, encouraging long-term investment in business assets. The longer the asset was held, the greater the relief, ultimately reducing the tax rate for business assets to as low as 10%.
Retirement Relief
Introduced in 1965 alongside CGT, Retirement Relief offered significant tax exemptions for business owners retiring. The qualifying age for individuals was eventually reduced to at least 50 years old (or earlier for ill health). Full relief applied if conditions were met for 10 years. The relief amount increased over time, peaking at £250,000 exempt from CGT, plus 50% relief on gains between £250,000 and £1,000,000. It began phasing out in 1999 and was abolished by 2003.
Conclusion
The changes to CGT and its reliefs, from Retirement Relief to BADR, emphasises the importance of staying informed and planning effectively. As tax policies continue to evolve, understanding these changes can help you navigate and make about decisions about the future of your business and plans for an exit.
Please note that this article is not intended to give specific technical advice. It is designed to highlight some of the key issues rather than provide an exhaustive explanation of the topics. Professional advice should always be sought before making any decisions.
This article was correct at time of publication.
