John Healey (pictured) announced a reduction in the threshold for CGT business asset disposal relief from £1m to £500,000. Picture by Lauren Hurley / Treasury
In its annual Budget today (28 October), the government unveiled a "founders' relief" of 10% on capital gains tax (CGT).
The new lifetime relief for founders of businesses will allow them to save up to a maximum of £10m in CGT bills from the sale of their company assets.
The decision by Chancellor of the Exchequer John Healey comes after reports earlier in October he was against an outright rise in CGT rates, which currently stand at 18% for basic-rate taxpayers and 24% for higher or additional-rate taxpayers on profits from the sale of assets.
However, the chancellor also announced a reduction in the threshold for capital gains eligible for business asset disposal relief from £1m to £500,000, which he said would mean "no change for three in four claimants".
Other pro-business measures in this Budget included the launch of a young entrepreneurs allowance, which will cover a year of living costs for young founders, and a trading allowance which raises the tax-free allowance on earnings of new ventures from £1,000 to £3,000.
These measures are set to come into force from 6 April 2027.
According to The Times, senior allies of Andy Burnham, including several cabinet ministers, had pressed for a rise in CGT on the sale of second homes, shares and other assets. However, Healey was said to have rejected those calls, in the wake of concerns that wealthy individuals could leave the UK or defer selling assets.
That followed a "growth speech" in September in which Healey emphasised the importance of supporting businesses.
He said at the time: "I dedicate myself to this mission as chancellor, to make Great Britain, growth Britain again – with more investment, more innovation and more jobs.
"I want to see this country as a country of wealth creation. I want our government decisions and policies to raise the levels of confidence, and investment, and profit in British business."
Despite this stance, there had been speculation that the government could tweak to the CGT regime to bring in more tax.
In a pre-Budget analysis, Capital Economics suggested a potential alignment of CGT with income tax rates, having the tax applied at death and rolled over, and an abolition of business asset disposal relief – now confirmed as being halved – were all possible options.
The first two of these could have brought in around £7.5bn, while the latter might have raised around £500m for the government, the consultancy said.
Consultancy RSM also suggested the removal of CGT forgiveness on death could be among the changes announced by Healey. However, there was no mention of this in his Budget speech today.
Its analysis put the amount that could be raised from this as up to £2bn per year over a 20 year period, as people inherit more assets.
"Given the limited time the chancellor has had in office, it would be prudent to take time beyond the Budget to evaluate his options. Otherwise, there is a risk complex, rushed reform could backfire," RSM partner Chris Etherington said.
