An Overview Capital Gains Tax (CGT) Relief Schemes

In this year’s Autumn Budget, Labour Chancellor Rachel Reeves announced a radical reform of Capital Gains Tax (CGT). CGT is paid whenever the sale of assets, most often property or shares, produces a gain over the original value of such assets. CGT is calculated as a percentage of the gain, not on the total value of the sale.

While the new CGT regime will mean that selling assets will be more expensive, there are a number of schemes that allow the deferral, reduction or even exemption from Capital Gains Tax. Many of these schemes are aimed at business owners, for whom the profit of an asset sale is often the payout that offsets years of labour, investment and risk taken by running their own company.

Below are the main available tax schemes that involve reduced CGT liabilities to those who eligible. Each of these relief schemes can be highly beneficial when structured appropriately, helping both individuals and businesses manage their tax liabilities effectively.

Annual Exemption

Every UK taxpayer has an Annual Exempt Amount that is deducted from the total capital gains made in a tax year, effectively reducing taxable gains. As of the 2024-2025 tax year, this allowance is £3,000 for individuals and personal representatives, and £1,500 for most trusts. Gains below this amount are not subject to CGT, providing a straightforward way to reduce tax on smaller disposals.

Business Asset Disposal Relief (BADR)

Previously known as Entrepreneurs’ Relief, Business Asset Disposal Relief (BADR) used to offer—prior to this Budget—a reduced CGT rate of 10% on qualifying gains up to £1 million for each taxpayer’s lifetime. This is now due to increase to 14% in April 2025, and then to 18% starting in April 2026 to match the new lower rate of CGT set out in the 2024 Autumn Budget.

To be eligible, individuals must meet certain criteria, such as holding a minimum percentage of shares in a “personal company” for at least two years prior to disposal. This relief is particularly advantageous for entrepreneurs selling businesses they’ve owned and operated.

Although not officially confirmed in the latest Budget, we assume that schemes that rely on the BADR framework such as the EMI scheme will follow the same incremental rates of 14% and then 18% over the next two years.

Enterprise Investment Scheme (EIS) & Gift Hold-Over Relief

The Enterprise Investment Scheme (EIS) allows investors to defer CGT on gains if the proceeds are reinvested in EIS-eligible shares. The deferred gain only becomes chargeable when the EIS shares are sold, or if certain conditions are no longer met.

Similarly, Gift Hold-Over Relief enables individuals who gift certain business assets to another person to defer CGT until the recipient sells the asset, effectively shifting the CGT liability to the new owner.

Seed Enterprise Investment Scheme (SEIS)

The Seed Enterprise Investment Scheme (SEIS) provides tax relief to investors by offering up to 50% CGT exemption on gains reinvested into SEIS-qualifying shares. This is a great incentive for early-stage investment, as it not only provides CGT relief but also income tax relief, further enhancing the tax efficiency for investors involved in small, growing businesses.

Gifts Between Spouses

Gifts between spouses or civil partners are exempt from CGT, provided both parties are UK residents. This allows spouses to transfer assets to each other without triggering a CGT liability, potentially allowing couples to maximise their use of the CGT annual exemption and other reliefs available individually.

Replacing Business Assets (Roll-Over Relief)

With Business Asset Roll-Over Relief, businesses can defer CGT when they sell an asset if the proceeds are reinvested in a similar asset used in the business within three years.

This relief is available for qualifying assets such as land, buildings, and machinery, making it a valuable option for businesses seeking to expand or update their assets without incurring immediate CGT.

EMI Share Option Scheme

For employees participating in Enterprise Management Incentive (EMI) Share Schemes, CGT can be significantly reduced. If certain conditions are met, employees may qualify for Business Asset Disposal Relief on gains made from selling shares acquired through the EMI scheme, reducing the CGT rate to match the BADR rate.

This incentivises long-term employment and ownership by offering tax-efficient growth for employees in qualifying companies.