What's changed on the CGT front?

The following headline rates of CGT are changing:

• an immediate increase to CGT rates: from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers;
• business asset disposal relief will change (from 6 April 2025) from 10% to 14%; and from 14% to 18% from 6 April 2026; and
• carried interest CGT rates will increase from 28% to 32% from 6 April 2025 and, from 6 April 2026, will be taxed within the income tax framework.

Anti-forestalling measures

The above changes were accompanied by broad anti-forestalling measures, which alter the timing of certain disposals for CGT purposes. The "normal" timing rules (which dictate that disposals under unconditional contracts take place at the time the contract is made) will not apply to unconditional contracts entered into on or before, and completed after, 30 October.  Instead, the presumptive date of disposal for those contracts is now the date of completion.

Those measures will not bite only where the taxpayer confirms in their tax return that the contract is an "excluded contract" for these purposes. Broadly, these are that obtaining an advantage under the "normal" CGT rules was no purpose of entering into the contract and, where the disposal was to a connected party, that the contract was entered into wholly for commercial purposes.

The following summary shows the position post-Budget:

• transaction exchanged and completed before 30 October 2024 – not caught by anti-forestalling rules;
• transaction exchanged with an unconditional contract entered into pre-30 October, with completion after 30 October – anti-forestalling rules apply to change the date of disposal to the date of completion unless the taxpayer confirms in their tax return that the contract is an "excluded contract";
• transaction exchanged with a conditional contract entered into pre-30 October, with completion after 30 October – normal timing rules apply, the date of disclosure is the date the contract becomes unconditional.

Practical application of the anti-forestalling rules

The "common" formulation for avoidance typically looks at whether obtaining a tax advantage was the, or a, main purpose of entering into a particular transaction or whether something has been done "wholly or mainly" for a particular purpose. The anti-forestalling rules are much less compromising.  Unless the taxpayer confirms that the timing of the disposal was "no purpose" of entering into the contract and, in cases involving connected parties, that it was entered into "wholly" for commercial reasons, the higher CGT rates will apply in respect of all unconditional contracts that straddle 30 October (even if entered into some months ago).

In contrast, the anti-forestalling rules do not catch contracts that completed immediately prior to 30 October even if they were completed with the aim of securing pre-Budget CGT rates. That is, presumably, on the basis that a CGT liability has crystallised which otherwise may not have done, and that current anti-avoidance rules (including the GAAR) can be used in cases where arrangements are considered to be wholly artificial.

Self-assessment has always required taxpayers to police their own tax affairs but the anti-forestalling rules require them to tell HMRC specifically whether they think those rules do not apply to them and, it is assumed, returns including such statements are more likely to be looked into by HMRC. Even in the case of contracts that signed and completed ahead of 30 October, taxpayers (and their tax advisers) will want to make sure that evidence is available making clear when the contract completed, possibly even to include specific wording in the white space in an individual's tax return to make this clear to HMRC.

Wider implications for taxpayers and advisers?

The requirement for individuals to proactively consider anti-forestalling measures and notify mirrors an approach that businesses have already had to get used to.  In the past, HMRC assessed and collected tax, and enquired into and investigated tax anomalies and irregularities. That process has been eroded over time and continues to evolve.

The first change came about with the introduction of self-assessment (for both businesses and individuals). Then came the "disclosure of tax avoidance schemes" rules, the code of practice for banks, the obligation on larger businesses to publish their “Tax Strategy”, the criminal offence of facilitation of tax evasion (and requirements on businesses to ensure they have processes in place to prevent this), and the obligation on large businesses to notify HMRC of "uncertain tax positions" taken in returns.

The emerging pattern was of HMRC and the Treasury wanting to be provided with information about perceived "gaps" or "loopholes" in the legislation. That now appears to be coupled with a willingness to alter general positions dictated by current law when introducing changes, so as to prevent taxpayers from accessing the desired tax treatment unless they meet particular conditions and flag to HMRC that this is the view they have taken.

Tax rules already include tools to encourage taxpayers to pay, and be seen to pay, their 'fair share' of tax, including an ability to "name and shame" taxpayers and avenues for discussing and agreeing the tax position on transactions with HMRC are narrowing – pre-transaction clearances and non-statutory clearances are both harder to come by. As well as the CGT changes discussed above, the Budget announced an increase in the interest rates that apply to late payments of tax and further clamp downs on areas of perceived avoidance.

Taking all the above into account, along with a penalty regime that is geared to the behaviour of the taxpayer and the use of "payments on account" to force taxpayers to lodge disputed tax on account with HMRC, it seems clearer than ever that the system is shifting in ways that strongly encourage a change of attitude by taxpayers, forcing them to adopt increasingly conservative positions in their tax returns or risk costly litigation and penalties.

Even stances based on existing law (such as agreeing a contract before Budget day which has commercial implications for the taxpayer) can now be affected by a temporary movement of goal posts.  That is good news for tax collection but carries scope for uncertainty for taxpayers and advisers alike.

Less certainty for taxpayers?

The October 2024 Budget has come and gone and the tax landscape has shifted once again. Whilst there were no radical changes to the basis of the CGT regime, the changes impact taxpayers immediately and, perhaps more importantly in the long run, are focussing on behaviours. We are quite some way away now from the principle outlined in Inland Revenue Commissioners v. Duke of Westminster [1936] A.C. 1 19 TC 490 where Lord Tomlin said:

Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow tax-payers may be of his ingenuity, he cannot be compelled to pay an increased tax.

As this quote demonstrates the standards by which those behaviours are being judged is ever shifting and this Budget has demonstrated that, in certain circumstances, those standards will not be known until after the transaction has been done.