Rachel Reeves has raised the capital gains tax (CGT) rates.
The chancellor confirmed she will increase the lower rate of capital gains tax from 10 to 18% and the higher rate from 20 to 24%.
Reeves said this would be while maintaining the rates of capital gains tax on residential property at 18 and 24%.
She said this means the UK will still have the lowest capital gains tax rate of any European G7 economy.
“Alongside these changes to the headline rates of capital gains tax we are maintaining the lifetime limit for business asset disposal relief at £1m to encourage entrepreneurs to invest in their businesses,” said Reeves.
Business asset disposal relief will remain at 10% this year, before rising to 14% in April 2025 and 18% from 2026/27.
Reeves added that she will increase CGT rates on carried interest to 32% from April 2025 and from April 2026.
Carried interest, which is one of the main forms of pay in the private equity (PE) industry, is currently taxed at a rate of 28%.
Capital Gains Tax is paid on the profit when you sell an asset that has increased in value.
CGT is payable by individuals including self-employed sole traders, partners in business partnerships and company owners.
It starts at a rate of 10% or 18% on profits above £3,000 made from selling residential property other than a main home.
It then rises to 20% on any amount above the basic tax rate or 24% on property.
CGT affects a small percentage of the population.
In 2022–23, only 350,000 individuals – 0.65% of the adult population – realised taxable gains, raising about £15bn a year.
The scope of the tax has increased after the previous government reduced the annual exemption from £12,300 to £6,000 from 6 April 2023 and £3,000 from 6 April 2024.
Copia head of sales, Tony Hicks, said: “The rise in CGT will particularly impact high-net-worth individuals and investors, making it more likely these investors will exceed their allowance and pay tax on their investment gains each year.
“The Consumer Duty mandates that firms actively work to prevent such an adverse outcome for clients that could have been foreseen and acted on.”
Tiago Veiga, CEO at Aurum Solutions, added: “Hiking the rate of capital gains tax is counterintuitive to the UK’s ambition of becoming an established global hub for technological innovation and fintech. What we need to be doing is creating an environment that enables businesses to generate wealth, and incentivise growth, not the opposite.”
Sarah Coles, head of personal finance, Hargreaves Lansdown, said the CGT hike is “bitter blow for investors”.
Coles said: “This doesn’t just affect those who are hit with a far bigger bill, it also makes investment less attractive for newcomers who don’t want to have to get to grips with a new tax risk. Already far fewer people in the UK invest than elsewhere in the world, and this could compound the problem.
“For existing investors, there’s a danger this will drive investor behaviour, and people will focus on tax considerations, rather than the investments that make the most sense for their circumstances. There’s also a danger they may hoard the assets – possibly until their death.”