Labour is increasing capital gains tax (CGT), in a move designed to bring in £2.5 billion over the coming years for public spending but which attracted a mixed response from businesses.
Chancellor Rachel Reeves said she will raise the lower rate of CGT to 18%, up from 10%, while the higher rate will increase to 24% from 20% previously.
CGT is charged on profit from selling an asset that has increased in value, such as stocks that are not held in an ISA, or a second home.
We need to drive growth, promote entrepreneurship, and support wealth creation ... while raising the revenue required to fund our public services ... and restore our public finances
The tax applies to individuals, but also to company owners, partners in a business, and self-employed people, among others.
The new lower and higher rates will match those already in place for residential property, which will stay unchanged at 18% and 24%, respectively.
Ms Reeves said the relief for people selling their businesses will be held at 10% this year, rising to 14% in 2025 and 18% in 2026.
The lifetime limit for business asset disposal relief will stay at £1 million, she added.
The Chancellor said that, despite the rises, the UK will still have the lowest CGT rate of any European G7 economy.
Ms Reeves said: “We need to drive growth, promote entrepreneurship, and support wealth creation … while raising the revenue required to fund our public services … and restore our public finances.”
The move will bring in £2.5 billion in tax receipts by the end of the forecast period, she said.
Sarah Coles, head of personal finance at investment firm Hargreaves Lansdown, said the increase “makes investment less attractive for newcomers”.
"The government will raise capital gains tax from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher and additional rate taxpayers." - @sarahecoles pic.twitter.com/9syxZbdll6
— Hargreaves Lansdown (@HLInvest) October 30, 2024
She added there is “a danger this will drive investor behaviour” and that some people may choose to “hoard” assets rather than cashing in and paying higher taxes.
But reports in the run-up to the Budget had led to speculation that the CGT rate could be raised as high as 39%.
Tom Golding, corporate tax partner at audit and accountancy firm PKF Littlejohn, said there will be “relief” among businesses that such a steep increase had not come to fruition.
Joshua Elash, chief executive of lender MT Finance Group, said the new level of tax “will not dampen any serious private equity activity”.
“We don’t see asset holders across any sector sitting tight for an extended period, or relocating, at the new tax levels.”
