Rising tax on gains

As you’ll be aware, if you sell a property for more than you paid for it the difference is liable to capital gains tax (CGT). This can result in a large tax bill especially in light of the recent hikes in the CGT rates. The good news is that there are a few tax breaks which you can use to mitigate the tax bill.

You must report and pay the CGT within 60 days of the sale of residential property or risk a penalty.

CGT rates

In 2025/26, you’ll be liable to 18% CGT when your combined income and gains fall in the basic rate band. Anything over this is charged at 24%. Where the gain takes you into the higher rate, you’ll pay a mixed rate, i.e. 18% and 24%. The difference in rates can be an important factor in reducing the CGT bill on the sale of assets, but first we need to consider what deductions are allowed before calculating CGT.

First deduction – capital losses

Before your CGT exemption is deducted from your gains, any capital losses you’ve made in the same year are deducted, plus any capital losses you made in earlier tax years which haven’t been used against gains.

Second deduction – annual exemption

The first £3,000 of any capital gain you make in 2025/26 is exempt. This allowance is per person and renews every tax year. Therefore, while it’s nothing to shout about, if the asset that you’re selling is owned jointly with your spouse or civil partner, the exempt amount is £6,000.

Check if you need to change the proportion of the property you and your spouse/civil partner each own to ensure annual exemptions and capital losses are used fully, and that the tax rate bands are optimised. Special rules are helpful in tax planning here.

Beware if the property is mortgaged, as a stamp duty land tax (SDLT) charge can arise if there is a transfer of the loan from one spouse/civil partner to the other.

In practice

If you want to split an asset it is advisable to allow at least a few months before the property is sold to a third party. For property, a deed of trust will be required and the new ownership must be registered.

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New business

As you’re probably aware, in most circumstances dividends are the most tax and NI-efficient way to take income from a company. The trouble is you can’t do this until the company has made profits from which dividends can be paid. Therefore, salary is the only option if you want cash income.

A director can take a salary from a company before it begins trading and it will receive tax relief for the cost under the pre-trade expense rules. These allow a tax deduction for expenses paid up to seven years before trade commences. These count as if they were a cost incurred on the day the company starts to trade.

Conditions

Tax relief for pre-trading costs are allowed for any expense that would be deductible once trade has begun. This condition might be tricky to meet in respect of a director’s salary.

HMRC’s approach to tax relief for salaries is that they must not be disproportionate to the work done for the business.

How much is reasonable?

Your role in the company before it starts trading will differ from than after trading has commenced, but that doesn’t make it any less necessary for the company’s business. Only you know how much time and effort is involved and so how much salary is justifiable. You shouldn’t therefore run into problems with HMRC over claiming pre-trading salary unless it’s very high.

Tax efficiency

The same principles of tax and NI efficiency apply for the pre-trading period as they do for salary paid when the business is up and running. The optimum amount of salary will depend on how much other income you have in the tax year.

NI efficiency

A director’s salary will be free of NI (employers’ and employees’) where it doesn’t exceed the employers’ earnings threshold. This is £9,100 for 2024/25 (£5,000 for 2025/26) but is reduced proportionately where the director is appointed part-way through the year. For example, if a director was appointed exactly half-way through 2024/25, the NI threshold is reduced to £4,550.

Consider employing or appointing another director to help with setting the business up, say your spouse or unmarried partner. By paying them above the employers’ earning threshold for just one week your company will qualify for the employment allowance. This reduces the employers’ NI bill by up to £5,000 (£10,500 for 2025/26).

Taking a salary from your company before it starts to trade is equally as tax efficient as one taken after it has commenced. Your company is entitled to a tax deduction as if the whole of the pre-trade salary had been paid on the first day of trade. You can pay yourself as much salary as is justifiable for the work you do. Paying someone else, say your spouse or unmarried partner, to help with pre-trade work can reduce NI costs.

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As a company owner manager, if you’re looking for financial help from your company, broadly you have three choices: salary, dividends or benefits in kind. If it’s cash you need it has to be the first two.

Comparison
As a rule of thumb, salary in excess of the NI threshold (£9,100 for 2024/25) is the least efficient option compared with dividends, which are usually the most tax efficient despite successive strikes by the government in recent years to reduce their advantage.

Tax-free or taxable

Benefits can be liable to tax and NI (employers’ only) or wholly exempt. Taxable benefits are more tax efficient than salary of an equal value but in most circumstances less efficient than dividends. Conversely, tax and NI-exempt benefits are more tax efficient than dividends.

A drawback of benefits is that they aren’t in cash. Therefore, they work best when used to replace an expense you would otherwise have to meet from your cash resources, e.g. bank account.

Limited choice
While there’s a wide range of exempt benefits, only some are suitable as an alternative to dividends, e.g. mobile phones, pension contributions, pensions advice, some childcare costs, bikes under the cycle-to-work scheme, benefits costing up to £50 and a few others. A full list of tax and NI-free benefits are listed on HMRC’s website

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The current timetable for mandating into MTD ITSA is as follows:

April 2026 for sole traders and landlords with income over £50,000; and
April 2027 for those with income over £30,000.
When this was announced, the previous government said it would consult on the position for those with incomes below £30,000 to ensure MTD was suitable. The Autumn Budget confirmed that the threshold will drop to £20,000 by the end of the current parliament (likely 2029), but for now there is no indication of which year this will apply to. HMRC’s guidance has been updated to reflect this.

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Headlines. Undoubtedly the biggest changes announced in the Autumn Budget were those affecting employers’ NI, pensions and inheritance tax reliefs. We’ll cover these separately in dedicated articles, but here we’re looking at the some of small but no less important changes that you might have missed.

No change for HICBC. The high income child benefit charge (HICBC) has been contentious since it was introduced over ten years ago. One of the main criticisms is that it is inequitable. As its name suggests, the charge, which in effect claws back child benefit payments, is aimed at families with “high income”. The trouble is that it can hit families harder if only one parent has income compared with those where both parents do. In March 2024 the government announced that it would review the HICBC to make it fairer. In the Autumn Budget the Chancellor scrapped the review meaning that some families continue to face higher tax bills compared with those who have more income.

Savings and investments. The good news is that contrary to rumours you’ll continue to be entitled to invest in ISAs. The bad news is that the limit on the amount you can invest, currently £20,000 per tax year, is frozen until April 2030. Similarly, the annual investment limits for Junior ISAs will remain unchanged at £9,000 and for Lifetime ISAs at £4,000.

Investors’ relief. This relief was created to encourage business angels to invest in small companies, especially start-ups. The relief is given in the form of a lower rate of capital gains tax (CGT) when the investor sells their shares having owned them for at least three years. The relief was capped to £10 million of capital gains over the investor’s lifetime. The cap is reduced by 90% to £1 million with effect from 30 October 2024.

SDLT. There were well publicised changes to the stamp duty land tax (SDLT) rates for the purchase of second and subsequent homes, but one initially slipped under the radar. From 1 April 2025 the higher SDLT rate of 5% will apply to a property costing more than £125,000, compared to the current threshold of £250,000.

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On 7 November 2024 an announcement confirmed a reduction in the Bank of England base rate to 4.75% from 5.0%. As HMRC’s late payment and repayment interest rates are linked to the base rate, it has confirmed that they will also come down.

From 18 November 2024 the following rates will apply:

Late corporation tax paid quarterly – 5.75%
Interest on overpaid corporation tax – 4.5%

From 26 November, the rates for other taxes will be:

Late payment interest – 6.75%
Interest on overpaid tax – 3.75%

Penalty interest can be avoided by paying your tax bill on time. As an added bonus to anyone expecting to receive interest on overpaid taxes, note that such interest is free from income tax.

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Income and personal taxes. In keeping with pre-election promises, there will be no changes to the current bands or rates for income tax, primary Class 1 NI, Class 4 NI or dividends. An unexpected announcement is that the personal tax thresholds will unfreeze from April 2028. It was rumoured that the current rates would be locked in for a further two years. Instead they will now increase annually, likely in line with CPI.

For employees with company-provided cars, the percentage for zero emission and electric vehicles will increase by two percentage points per year in 2028 to 2029 and 2029 to 2030, rising to 9% in 2029 to 2030.

The domicile status will cease to apply for income tax and capital gains tax (CGT) as planned.

Business taxes. A leaked increase in the rate of secondary Class 1 NI was confirmed, with the rate increasing to 15% from April 2025. This was coupled with a reduction in the payment threshold to £5,000 (£96.15 per week). However, to ensure this doesn’t adversely impact smaller employers, the employment allowance will increase to £10,500 – more than double its current level.

Despite significant criticism, the previously-announced application of VAT to private school fees will go ahead. Further details should be available soon.

Capital taxes. The two-tiered system of CGT rates will be retained, but the rates are increased with immediate effect to 18% and 24%, aligning the rates applicable to assets generally with those for residential property. The trust rate increases to 24% accordingly. This applies to disposals made on or after 30 October 2024. The rate applying to carried interest will increase to 32% from April 2025, with further reform promised.

The rate that applies to business asset disposal relief and investors’ relief is increasing to 14% for disposals made on or after 6 April 2025 and from 14% to 18% for disposals made on or after 6 April 2026. The lifetime limit for investors’ relief reduces to £1 million (from £10 million) for disposals made on or after 30 October 2024.

Inherited pensions will be brought within inheritance tax from April 2025. Agricultural property relief.

Other taxes. The stamp duty land tax surcharge for purchases of additional dwellings increases to 5% (from 3%) from 31 October 2024. This also increases the rate paid by companies etc.to 17% for residential properties over £500,000.

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The Living Wage Foundation’s real Living Wage is an hourly rate which is updated annually each autumn. It’s calculated independently based on the real cost of living in the UK, and a basket of household goods and services is used to calculate it. The new Living Wage rates are £13.85 per hour for London (which covers all boroughs in Greater London) and £12.60 per hour for the rest of the UK. It’s voluntary, so you don’t have to pay it if you don’t want to or can’t afford to, but those employers that do can apply to become accredited real Living Wage employers. There are now over 15,000 accredited Living Wage employers, and they must implement this pay rise for over 475,000 workers aged 18 and older as soon as possible and by no later than 1 May 2025.

Conversely, the government’s statutory national living wage (NLW) and national minimum wage (NMW) are compulsory and the rate applicable depends on the worker’s age and there is no London weighting. The current hourly rates of the NLW and NMW are as follows, but these are set to rise from 1 April 2025, with the new rates expected to be announced in the Budget on 30 October 2024:

NLW rate for workers aged 21 and over: £11.44
NMW rate for workers aged 18 to 20: £8.60
NMW rate for workers aged 16 and 17: £6.40
NMW apprentice rate: £6.40.
The government has said that, from April 2025, the NLW rate will, for the first time, take account of the cost of living, and the NMW rate for workers aged 18 to 20 will be set so as to narrow the gap with the NLW. The government’s ultimate ambition is for there to be a single adult NLW rate applying to all workers aged 18 and over.

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