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Tax Bite – Autumn Budget 2024 – CGT anti-forestalling and BADR, including elections

We noted in our Tax Bite of 31 October (https://parisitax.co.uk/blog/october-budget-implications-for-business-owners) the key changes to CGT rates announced in the budget the previous day, being:

• An increase in the main rate of CGT from 20% to 24% for sales on or after 30 October (and a change in the corresponding basic (lower band) rate from 10% to 18%); and
• Business asset disposal relief (“BADR”) remaining at £1m and a 10% tax rate up to 5 April 2025, but then the rate increasing to 14% from 6 April 2025 and to 18% from 6 April 2026.

This Tax Bite looks in a little more detail at some aspects of the anti-forestalling (“AF”) rules around these changes, the detailed draft legislation for which has been published.

Unconditional contracts

There is a general unconditional contract AF rule, so that where an asset is sold on or after 30 October under an unconditional contract entered into before that date, the usual CGT rule (that the date of the contract is the CGT date of disposal) is modified so that the CGT trigger date is the date of completion, unless “no purpose” of entering into the contract was to benefit from the unconditional contract date of disposal rule. That “no purpose” requirement has (save for gains of less than £100,000) to be evidenced in a claim by the person who is claiming entitlement to the pre-Budget rate of CGT, so HMRC will be alerted to any such claims. Also, if the parties to the contract are connected, the contract has to be entered into wholly for commercial reasons.

The strength of any argument that “no purpose” of entering into the contract was to benefit from the unconditional contract date of disposal rule would need to be assessed on the facts of each individual case.

That unconditional contract AF rule is then extended to BADR, in the context of the stepped increase in the BADR CGT rate, in essentially the same way. So for example it is already written into the rules that assets sold on or after 6 April 2026 under unconditional contracts entered into any time in tax year 2025/26 will, for BADR purposes, be subject to CGT based on the post 6 April 2026 rate unless the conditions outlined above are again satisfied.

BADR and elections

A feature of the BADR rules is that where a person enters into a share for share (or share for loan note) exchange, although the default position is typically that no CGT is triggered at the time of the exchange (i.e. a rollover), if the sale would have qualified for BADR, the person making it can elect out of rollover treatment and so trigger CGT at the time of the exchange (and claim BADR).

The latest AF rules in this area mean that, in certain cases, if an exchange happens and an election is made later, the CGT is triggered as at the date of the election, not the date of the exchange.

These election AF rules only apply where the exchange took place after 6 April 2023 and the election is made on or after 30 October 2024, and (broadly, and subject to some more detailed requirements) only where there is either no ultimate change of control in the original company, or where the exchanging shareholders increase their stake e.g. where there is a Newco acquisition of all of the shares in the target company, some shareholders roll over (taking or increasing their control) and some are cashed out.

Interestingly on this final AF rule, as the BADR CGT rate has been maintained at 10% until 6 April 2025, even if the AF rule applied, so long as a valid election was made on or before 6 April 2025, the CGT rate would still be 10% to the extent BADR was available and claimed on the gain, meaning there is time to secure the current lowest BADR rate.

As a general warning (not specific to the budget measures) advice always needs to be taken before entering into elections out of rollover, as there are other consequences to bear in mind. These include that the election is irrecoverable and “all or nothing”, it triggers the tax even if there is no cash to pay it, and means a risk of triggering tax on value that may not ultimately be realised if the replacement shares go down in value.

The deadline for making such elections is unchanged for now, being the first anniversary of 31 January following the end of the tax year of the exchange, i.e. 31 January 2027 for exchanges entered into in tax year 2024/25.

If you have clients who may require advice on any of this, please don’t hesitate to get in touch.