Investors react to capital gains tax rise

Investors and entrepreneurs face paying higher rates of capital gains tax in a tax rise that will bring in £8.9 billion by 2030.
The rates of the tax were raised for those making gains on all assets apart from property, with basic-rate taxpayers facing a rise from 10 per cent to 18 per cent and higher-rate taxpayers will face an increase from 20 per cent to 24 per cent.
It will hit investors with shares held outside an Isa who report capital gains of more than the £3,000 annual allowance, as well as those selling valuables such as artwork, jewellery or wine.
However, there was no rise in capital gains tax (CGT) for landlords or second-homeowners selling their properties, nor did the chancellor follow more radical suggestions to bring the rates of capital gains tax in line with income tax. The rise in the rate of capital gains tax follows the annual allowance in which you can report gains without facing a tax bill falling from £12,300 in 2022 to £3,000 by this year.
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The government also reduced a longstanding relief designed to reward entrepreneurs for starting successful businesses. Capital gains tax due under the business asset disposal relief scheme will leap by eight percentage points to 18 per cent over the next two years.
The rate is paid by the owners of shares in businesses that realise up to £1 million in gains. It will rise to 14 per cent from April 2025 and to 18 per cent in 2026. The Treasury said this would give business owners “time to adjust to the changes”.
It means that someone enjoying a £2 million gain from selling shares in a company will have their tax bill rise by £120,000 to £420,000 after April 6, 2026.
The tax raid was condemned by some business owners, while others were relieved the increases were not as great as first feared.
Paul Taylor, founder of Thought Machine, a banking technology firm he set up in 2014, described the hike in tax as a “tax on risk-takers”.
However, Ravi Anand, managing director of ThinCats, an alternative lender, said on capital gains tax the chancellor had “walked the line of still incentivising” business owners while raising more tax.
The relief, previously known as Entrepreneurs’ Relief, used to be significantly more generous but was curtailed in 2020 amid Treasury concerns about its cost and effectiveness.
Nicholas Hyett from the investment firm Wealth Club said: “The CGT straitjacket has been pulled steadily tighter for years and the decision to raise CGT rates across the board today will only make matters worse.
“It is only paid by a minority of, generally wealthier, taxpayers, which probably explains its appeal to the government.
“However, it also represents a tax on risk taking, since it’s only charged on gains from investments or setting up your own business.”
The decision to introduce the higher rate from the day of the budget rather than at the start of the new tax year is likely to stop investors selling assets before it comes in. Capital gains tax raised £14.5 billion in 2023-24, according to HM Revenue & Customs.
Investment firms have reported a sharp rise in savers selling shares, sometimes buying them back inside a tax-free Isa, since the new government came to power because of the belief that capital gains tax would go up.
Bestinvest, an investment firm, said there had been a 25 per cent rise in the number of “Bed and Isa” transactions, where investors sell shares and buy them back in an Isa, because the government was elected on July 5 compared with the same period last year. Hargreaves Lansdown, another investment firm, said so far this year these transactions were up 44 per cent.
The Treasury said the increases would raise £90 million in the remainder of 2024-25, and then £1.44 billion next year. This will increase total capital gains tax receipts from £14.5 billion last year to £15.7 billion in 2024-25, and to £31 billion by 2029-30, according to the forecasts by the Office for Budget Responsibility.
This will also be down to more wealthy savers having to invest outside an Isa, because the £20,000 annual allowance on what you can pay in will be frozen until 2029-30. This, along with freezing the £9,000 Junior Isa allowance, will raise £605 million a year by 2029-30.