Taxpayers should prepare now for a Capital Gains Tax rise
Taxpayers should prepare for the Labour government to increase the rate of Capital Gains Tax (CGT) at the upcoming Autumn Budget, say leading audit, tax and business advisory firm, Blick Rothenberg.
Nimesh Shah, CEO of the firm, said: “The prime minister, Keir Starmer has clearly signposted that the Autumn Budget will be ‘painful’ for higher earners and wealthy taxpayers; this follows Rachel Reeves’ statement earlier in the summer that the government must raise taxes to fix the ‘black hole’ in the nation’s finances. One obvious option to do this without breaking Labour’s election promises is by raising CGT. The prime minister and chancellor seem to be acting with urgency when it comes to tax changes, so taxpayers will need to prepare now for a likely mid-year CGT rise.”
He added: “Currently CGT raises less than 2% of the total tax take – it raised £14.5bn in 2022/23, and this is £2.5bn down from the previous tax year. To improve that tax take the chancellor could potentially increase the rate of CGT to 25%-30%, and apply a lower rate, of say 20%, for sales of business assets to support entrepreneurial growth.”
Nimesh said: “Those selling listed shares standing at a capital gain will need to watch out for the CGT 30-day rule if they decide to act now – this means that investors must wait 30 days before acquiring the exact same share or same class of a specific fund. HMRC implemented this to stop investors who intend to maintain ownership of specific securities from maximising their CGT savings, under the so-called ‘bed and breakfasting’ approach.”
He added: “If you are in the process of selling your private business, or a property you are in the hands of others so can’t fully dictate the timeline. There can be options to crystalise a capital gain under the current rate – but this would essentially mean you are committed to paying the associated tax by 31 January 2026 (if you are taking action in the current 2024/25 tax year) and you would be relying on any transaction completing and receiving the proceeds by then to pay the tax bill.”
Nimesh said: “The likely CGT changes could also encourage individuals to leave the UK and become non-UK tax resident – if this can be successfully achieved, they would fall outside the CGT net (other than for disposals of UK land).”
He added: “As well as raising rates, there are other aspects of the CGT regime that could be reformed by the chancellor, Rachel Reeves:
- Abolish the £1m business asset disposal relief limit
- Tax lottery and gambling wins (but you might need to give relief for losses)
- Remove the CGT exemption for ‘wasting assets’ such as wine and classic cars
- Remove the £3,000 capital gains annual exemption
- Cap the amount of principal private residence relief someone can claim in their lifetime (although Keir Starmer said during the general election campaigning that principal private residence would be left alone)
- Remove the capital gains base cost uplift on death (but this may come as part of reforms to Inheritance Tax.)”
Nimesh said: “We will have to wait and see exactly what the prime minister and new chancellor decide to do – but given the recent statement and fast pace of other changes, such as VAT on private school fees, it seems inevitable now that the tax cost for many investors and entrepreneurs is only going to go up.”
