- The headline rate of CGT rises from today for both basic and higher-rate taxpayers
- Reliefs for business owners to be reduced
Capital gains tax on shares is increasing from today, in a blow to investors who now face a heftier tax bill when they sell their assets that sit outside of Isas and pensions.
The basic CGT rate has increased from 10 per cent to 18 per cent, while the higher rate has been hiked from 20 per cent to 24 per cent, chancellor Rachel Reeves announced in the Autumn Budget. But in a win for landlords, CGT rates on residential property will stay the same, also at 18 per cent and 24 per cent. The changes are effective from 30 October.
Rob Morgan, chief investment analyst at Charles Stanley, said the CGT increase was “unwelcome news for investors”. “Gains are added to income when calculating CGT, so large taxable gains taken by basic rate taxpayers, or even non-taxpayers, can mostly be at the higher rate. This will mean more investors will run aground on the rocks of capital gains tax when they take profits,” he added.
Reeves also announced changes to business asset disposal relief (BADR) and investors’ relief, which can reduce CGT for investors and business owners who sell a stake in a private company. The lifetime limit for investors’ relief was reduced from £10mn to £1mn from 30 October, bringing it in line with the BADR limit.
The CGT rate on assets qualifying for either BADR or investors’ relief is also set to rise. Both will remain at 10 per cent this year, but increase to 14 per cent in April 2025 and 18 per cent from 2026-27. The staggered rises are intended to give business owners time to adjust to the changes. The government said this demonstrates its “commitment to a predictable tax system”.
Reeves said that according to the Office for Budget Responsibility, the measures would raise £2.5bn by 2029-30. But some are concerned that the plans might not have the effect the government hopes for.
Rachael Griffin, tax and financial planning expert at Quilter, said: “While this move is aimed at boosting revenue, it is likely to have the opposite effect, as it discourages investment and leads to reduced economic activity across key sectors.
“One key problem with raising CGT is that it doesn’t necessarily guarantee more tax revenue. Higher CGT rates often result in fewer people selling assets, as they choose to sit on them to avoid triggering a bill. This has the effect of locking wealth into certain asset classes, reducing the flow of capital into the economy.”
The government did however reiterate its commitment to extend the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs), with their associated CGT benefits, to 2025.
