Autumn Budget 2024: Capital gains tax hiked
The maximum rate of capital gains tax will be hiked to 24 per cent, Chancellor Rachel Reeves announced in today’s Autumn Budget.
“This means the UK will still have the lowest capital gains tax rate of any European G7 economy,” said Reeves in her speech to Parliament.
Currently, higher-rate taxpayers face capital gains tax rates on profit above £3,000, with 20 per cent charges for most assets and 24 per cent for residential property. Basic-rate taxpayers pay 10 per cent and 18 per cent, respectively.
Now, the government will increase the lower rate of capital gains tax from 10 per cent to 18 per cent, and the Higher Rate from 20 per cent to 24 per cent. The residential property thresholds will remain unchanged.
“The change to the capital gains tax regime was a thinly veiled secret that has finally come to fruition after months of intense speculation,” said Myron Jobson, senior personal finance analyst at Interactive Investor.
“While the change will help the government plug the multi-billion-pound black hole, it could prove to be a real headache for investors.”
Reeves also said the government would be maintaining the lifetime limit for business asset disposal relief at £1m “to encourage entrepreneurs to invest in their businesses”.
Capital gains tax increase lower than rumours
Rumours had swirled that the Chancellor would be upping the level of capital gains tax to align with income tax, leading the rate for basic-rate taxpayers to double to 20 per cent and higher-rate taxpayers shelling out 40 per cent.
As Chancellor under Margaret Thatcher, Nigel Lawson famously aligned the two tax rates, saying there was “little economic difference” between them.
However, a Treasury minister rebutted speculation that the alignment would happen in the run-up to the Budget, stating that the possible jump was something he “completely didn’t recognise,” while Prime Minister Keir Starmer said it was “pretty wide of the mark”.
Instead, Reeves has opted to go for a softer approach, raising the limit to 24 per cent.
“This is a lot less than expected, and the pound is picking up on the back of this,” said Kathleen Brooks, research director at XTB.
“It is also good news for UK stocks and removes much uncertainty that was fueling share sales.”
Sarah Coles, head of personal finance at Hargreaves Lansdown, said that while it “could have been worse, with suggestions of a doubling of the rate,” she still viewed it as a “blow for investors”.
“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,” she said.
The UK’s capital gains tax rate is still one of the lowest in Europe, with only a handful of countries in the OECD like Greece (15 per cent) and Slovakia (19 per cent) beating it out.
Ireland’s rate sits at 33 per cent, while France charges 34 per cent for high earners.
Only 350,000 people pay the tax – around 0.65 per cent of the UK.