All about capital gains for 2025

As we step into 2025, taxpayers in the UK are facing a wave of changes in tax regulations, particularly concerning capital gains. It’s essential to understand how these changes could impact your finances, whether you’re selling investments, disposing of business assets, or navigating new tax allowances. This article will break down the key changes, what they mean for you, and how to prepare for them. So, let’s get into it!

Key Takeaways

• Capital Gains Tax rates are set to rise in 2025, impacting profits from asset sales.

• Business Asset Disposal Relief will see a gradual increase in tax rates, making early sales potentially more beneficial.

• Tax allowances are being frozen, meaning more taxpayers may face higher bills without any increase in thresholds.

• Investors should consider tax-efficient options like ISAs to maximise their returns amid changing tax rules.

• Consulting accountants in Weybridge can provide tailored advice to navigate these new tax landscapes.

Understanding Capital Gains Tax Changes

Overview of Capital Gains Tax

Capital Gains Tax (CGT) is something I need to keep a close eye on, especially with the changes coming in 2025. It's essentially a tax on the profit I make when I sell or dispose of an asset that has increased in value. This could be anything from shares and property to personal possessions worth over £6,000 (excluding my car). The amount of CGT I pay depends on my income tax band and the type of asset I'm selling. It's not always straightforward, and understanding CGT is key to managing my finances effectively.

Key Changes for 2025

Several changes are on the horizon that will affect how I calculate and pay CGT. The rates for Business Asset Disposal Relief (BADR) are set to increase, impacting business owners who are planning to sell their companies. Also, there are adjustments to stamp duty thresholds which will affect property purchases. These changes, alongside frozen income tax thresholds, mean I need to be extra vigilant in my financial planning. The government's rationale is to allow business owners time to adjust to the changes.

Impact on Taxpayers

These changes will have a ripple effect on various taxpayers. For instance, the frozen tax thresholds mean more pensioners will likely pay income tax as their state pension increases. The increase in CGT rates for certain disposals will reduce the net profit I make on those sales. It's a bit of a squeeze, and I'll need to look at ways to mitigate these impacts. I need to be versed about the current tax rates and regulations.

It's important to remember that these tax changes are part of a broader fiscal strategy. While they might seem like individual adjustments, they collectively influence the overall financial landscape. Staying informed and seeking professional advice can help me navigate these changes effectively.

Here's a quick summary of some key changes:

• Increased CGT rates on certain disposals.

• Frozen income tax thresholds leading to fiscal drag.

• Adjustments to stamp duty thresholds affecting property buyers.

Business Asset Disposal Relief Explained

What is Business Asset Disposal Relief?

Business Asset Disposal Relief (BADR), previously known as Entrepreneurs' Relief, is a tax relief designed to lower the amount of Capital Gains Tax (CGT) you pay when you sell or dispose of qualifying business assets. It's essentially a way for the government to encourage business owners to invest and grow their companies, knowing that when they eventually sell, they won't be hit with a massive tax bill. Disposing of an asset doesn't always mean selling it; it could also involve giving it away or swapping it for something else. I think it's a pretty good deal, if you can get it.

Eligibility Criteria for BADR

To qualify for BADR, there are a few key criteria you need to meet. It's not just a free-for-all, unfortunately. Here's a quick rundown:

• You must be an individual (sole trader, partner, or shareholder in a personal company). Companies themselves can't claim BADR.

• The business must be a trading business, not an investment business. Capital Gains Tax is a complex topic, so it's important to understand the rules.

• If you're selling shares, you generally need to have held at least 5% of the company's shares and voting rights for at least two years.

• You must have been an employee or officer (like a director) of the company for at least two years.

It's worth noting that there's a lifetime limit to how much you can claim in BADR. Make sure you keep track of any claims you make, so you don't accidentally go over the limit and end up paying the regular CGT rate.

Changes to BADR Rates in 2025

Now, here's where things get interesting for 2025. The rate of BADR is changing. Currently, gains eligible for BADR are taxed at a reduced rate of 10%, but this is set to increase. For disposals made on or after 6 April 2025, the rate will rise to 14%. And it doesn't stop there! From 6 April 2026, the rate will increase again to 18%. This gradual increase is supposedly to give business owners time to adjust, but honestly, it might just push people to sell sooner to take advantage of the lower rate while they still can. Here's a quick summary:

Disposal Date	BADR Rate
Before 6 April 2025	10%
6 April 2025 - 5 April 2026	14%
On or after 6 April 2026	18%

Navigating Tax Allowances and Thresholds

Frozen Tax Allowances

The freeze on tax allowances is a big deal, and it's something I'm keeping a close eye on. The personal allowance, which is the amount you can earn before paying income tax, has been frozen at £12,570. This means that as my income increases, I'll be paying more tax, even if my real earnings haven't significantly changed due to inflation. It's a bit of a 'stealth tax' increase, as they say. I'm also aware that the dividend allowance has been reduced to just £500, so I'm trying to be more strategic about how I take income from my investments. I'm also keeping in mind the personal savings allowance, which is £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. It's all about being aware of these thresholds and planning accordingly.

Impact of Frozen Thresholds

Frozen thresholds are definitely squeezing my finances. Because the income tax bands aren't increasing with inflation, more of my income is being taxed at higher rates. It's something I need to factor into my budgeting and financial planning. I'm also aware that the main Inheritance Tax (IHT) threshold will remain frozen at £325,000 until 2030, so I'm thinking about ways to mitigate any potential IHT liability. It's a long game, but it's important to be prepared. I'm also keeping an eye on the National Insurance employee threshold, which is also remaining frozen. This means I might end up paying more National Insurance than I expected.

Strategies to Maximise Allowances

Maximising my allowances is now a top priority. Here's what I'm doing:

• ISA utilisation: I'm making sure to use my full £20,000 ISA allowance each year to shield my investments from income tax and capital gains tax. I'm considering a Self Assessment tax return to see if I can reduce my tax bill.

• Pension contributions: I'm increasing my pension contributions to take advantage of the tax relief. It's a win-win: I'm saving for retirement and reducing my current tax liability.

• Claiming all allowable expenses: As a freelancer, I'm meticulous about claiming all allowable business expenses, from home office costs to business travel. Every little bit helps.

It's important to remember that tax rules can be complex, and what works for one person might not work for another. I'm planning to consult with a financial advisor to get personalised advice and make sure I'm making the most of all available allowances and reliefs.

Investment Strategies for 2025

Utilising ISAs Effectively

As the tax year of 2025 progresses, it's more important than ever to make the most of Individual Savings Accounts (ISAs). ISAs remain a powerful tool for shielding your investments from income tax and capital gains tax. I'm planning to fully utilise my £20,000 ISA allowance this year. I can spread this across a Cash ISA, Stocks and Shares ISA, or even an Innovative Finance ISA, depending on my risk appetite and financial goals. Remember, any interest or returns earned within an ISA are tax-free, which can significantly boost your savings over time. I'm also considering a Lifetime ISA, where I can save up to £4,000 per year and receive a government bonus, although this is specifically for buying a first home or retirement.

Tax-Efficient Investment Options

Beyond ISAs, I'm exploring other tax-efficient investment options to diversify my portfolio. Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS), and Seed Enterprise Investment Schemes (SEIS) offer attractive tax reliefs, but it's crucial to remember that these investments come with higher risks. I'll be doing my homework and possibly consulting a financial advisor before committing to any of these. It's also worth noting that the government has extended EIS relief and VCT relief to shares issued before 6 April 2035, providing continued opportunities for tax-efficient investing.

Planning for Dividend Income

With the dividend allowance remaining at a modest £500 for the 2025/26 tax year, careful planning is essential for managing dividend income. Any dividends I receive above this amount will be subject to income tax, so I'm looking at ways to minimise my tax liability. One strategy is to hold dividend-paying investments within my ISA to shield them from tax. Another option is to consider the timing of dividend payments to avoid exceeding the allowance in any given tax year. It's also important to remember that HMRC doesn't automatically track dividend income, so I'll need to report any earnings above the allowance on my tax return.

I'm also keeping an eye on potential changes to capital gains tax (CGT) rates, as these could impact my investment strategies. With CGT rates having risen in recent years, it's more important than ever to plan ahead and consider the tax implications of any investment decisions.

Impact of National Insurance Changes

Increased National Insurance Rates

From April 6th, 2025, employers will face increased National Insurance costs. The rate is set to rise from 13.8% to 15% for Class 1, 1A, and 1B contributions. This change is designed to raise a significant amount annually, impacting businesses of all sizes. It's a pretty big adjustment, and I think it's important to understand how it will affect your bottom line.

Effects on Employers and Employees

While these changes won't directly affect employees' take-home pay, they will increase costs for employers. Businesses might need to adjust their pricing to offset these increased expenses. The lower earnings threshold, reduced from £9,100 to £5,000, means employers will pay NI on more of their employees' earnings. This could lead to some tough decisions for businesses, especially smaller ones. I'm keeping an eye on how this plays out, as it could have a ripple effect across the economy.

Planning for Increased Costs

To prepare for these changes, I'm looking at a few strategies:

• Reviewing my budget to identify areas where I can cut costs.

• Exploring available tax relief options to minimise the impact.

• Adjusting my financial planning to account for the increased expenses.

It's crucial to stay informed about the latest regulations and seek professional advice to mitigate the effects of these increases. I'm planning to consult with my accountant to ensure I'm fully prepared and compliant. It's always better to be proactive when it comes to tax changes.

It's also worth noting that there are opportunities to top up your state pension by making voluntary National Insurance contributions, but the deadline is approaching in April 2025. So, if you've missed a few years, now might be the time to act.

Understanding Inheritance Tax Adjustments

Current Inheritance Tax Thresholds

As it stands, the main IHT threshold is frozen at £325,000, and it's expected to remain there until 2030. There's also an additional rate for passing on property, which sits at £175,000. The annual gift allowance is fixed at £3,000. These frozen thresholds mean more estates could be liable for inheritance tax as property values and other assets increase over time.

Future Changes to Inheritance Tax

One significant change on the horizon is that from April 2027, pensions will be included as part of the taxable estate. This is a big shift, as pensions have traditionally been treated differently for inheritance tax purposes. It's something we all need to be aware of and plan for accordingly.

Strategies for Minimising Inheritance Tax

Minimising inheritance tax can seem daunting, but there are several strategies I'm considering:

• Utilising annual gift allowance: Making use of the £3,000 annual gift allowance can gradually reduce the value of your estate without incurring inheritance tax.

• Making lifetime gifts: Gifting assets during your lifetime, while adhering to the seven-year rule (where gifts made within seven years of death are potentially subject to inheritance tax), can be an effective strategy.

• Reviewing will and estate planning: Regularly reviewing your will and overall estate plan ensures it aligns with current tax laws and personal circumstances.

It's important to remember that tax laws can change, and what works today might not be the best approach tomorrow. Staying informed and seeking professional advice is key to effective inheritance tax planning.

I'm also looking into setting up trusts to manage assets and potentially reduce the inheritance tax burden. It's a complex area, but with careful planning, I hope to minimise the impact of inheritance tax on my loved ones.

Preparing for Stamp Duty Changes

New Stamp Duty Thresholds

Okay, so here's the deal with stamp duty. From April 2025, the thresholds are changing, and it's going to affect quite a few people looking to buy property. The current threshold of £250,000 for paying stamp duty on a main residence is going back down to £125,000. This means you'll start paying stamp duty on a larger portion of your property's value. It's a bit of a bummer, I know, but it's something we need to be aware of and plan for.

Impact on Property Purchases

These changes will definitely have an impact on the market. More purchases will be subject to stamp duty, which could slow things down a bit. If you're buying, you'll need to factor this extra cost into your budget. It's not just about the price of the house; it's about all the additional expenses that come with it. I'm keeping an eye on how this affects house prices and overall market activity. It's worth checking out the new stamp duty rates to see how they might affect you.

Advice for First-Time Buyers

First-time buyers, listen up! The stamp duty threshold for you is also dropping, from £425,000 to £300,000. This is a pretty significant change. Here's what I reckon you should do:

• Reassess your budget: Make sure you've accounted for the extra stamp duty you might have to pay.

• Consider smaller properties: It might be worth looking at properties that fall under the new threshold to avoid the tax altogether.

• Get professional advice: Talk to a mortgage advisor or accountant to understand your options and plan accordingly.

It's a good idea to get your finances in order and be prepared for these changes. Stamp duty can add a significant amount to the cost of buying a home, so it's important to factor it into your calculations. Don't get caught out – plan ahead!

Seeking Professional Guidance

Tax laws are complex, and with the changes coming in 2025, it's easy to feel lost. I know I sometimes do! That's why seeking professional guidance is more important than ever. A good accountant can help you understand how these changes affect you and develop strategies to minimise your tax liability. Don't underestimate the value of expert advice.

Importance of Consulting Accountants

Accountants aren't just number crunchers; they're strategic partners who can help you make informed financial decisions. They can provide tailored advice based on your specific circumstances, ensuring you're not paying more tax than you need to. Plus, they can keep you updated on the latest changes in tax legislation, saving you time and stress. For example, they can help you understand the treatment of allowable losses on loans.

How Accountants Weybridge Can Help

Accountants in Weybridge, like many others across the UK, are gearing up to assist clients with the 2025 tax changes. They can offer a range of services, including:

• Tax planning and compliance.

• Business asset disposal relief advice.

• Inheritance tax planning.

• Investment strategy reviews.

By working with a local accountant, you gain access to someone who understands the nuances of the UK tax system and can provide personalised support.

Choosing the Right Accountant for Your Needs

Finding the right accountant is crucial. Here are a few things to consider:

1. Experience: Look for someone with experience in your specific area of need (e.g., capital gains, inheritance tax).

2. Qualifications: Ensure they are properly qualified and accredited.

3. Communication: Choose someone who communicates clearly and is easy to work with.

It's worth shopping around and speaking to a few different accountants before making a decision. After all, you're entrusting them with your financial well-being!

If you're feeling lost with your finances, don't hesitate to reach out for help. Professional guidance can make a big difference in managing your money effectively. Visit our website today to learn more about how we can assist you with your bookkeeping needs. Let’s work together to simplify your financial journey!

Wrapping Up on Capital Gains for 2025

As we look ahead to 2025, it's clear that capital gains tax is set to change quite a bit. With the new rates and rules coming into play, it’s important to stay informed. Whether you’re selling a property, shares, or other assets, understanding how these changes affect you can save you money in the long run. It might be a good idea to chat with a tax advisor to make sure you’re making the most of your situation. Remember, being proactive now can help you avoid surprises later. So, keep an eye on your investments and plan accordingly!

Frequently Asked Questions

What is capital gains tax?

Capital gains tax is a tax on the profit you make when you sell something for more than you paid for it, like property or shares.

What are the main changes to capital gains tax in 2025?

In 2025, the rates for capital gains tax are set to increase, meaning you will pay more tax on profits from selling your assets.

How does Business Asset Disposal Relief work?

Business Asset Disposal Relief allows business owners to pay a lower rate of capital gains tax when they sell their business, if they meet certain conditions.

What should I know about tax allowances for 2025?

Tax allowances will be frozen in 2025, meaning they won’t increase until 2028. This could affect how much tax you pay.

How can I invest tax-efficiently in 2025?

You can use ISAs to save tax-free, and consider other options like Venture Capital Trusts to reduce your tax bill.

Why is it important to consult an accountant?

Consulting an accountant can help you understand the tax changes and find ways to save money on your taxes.