Budget Capital Gains Tax Changes
Rachel Reeves Could Raise CGT Rate in October Budget
Rumours have been circulating that Chancellor Rachel Reeves will announce an increase in capital gains tax on October 30th when she delivers her first Budget.
The capital gains tax rate is currently 24% if you sell residential property (for example a second home or rental property) and are a higher-rate taxpayer. The rate is 18% to the extent that you are a basic-rate taxpayer.
Lower rates apply to most other assets like stock market investments and commercial property: 10% for basic-rate taxpayers and 20% for higher-rate taxpayers.
Press reports have speculated that the top rate could be increased to as much as 39%, although we at Taxcafe think that this is highly unlikely.
Although some believe that taxing capital gains at the same rates as income is perfectly fair, this is utter nonsense. In some cases it could be argued that CGT is too high and there should be more generous reliefs.
Take the example of someone who buys a property for £100,000 and sells it for £200,000 after 20 years. If inflation has averaged around 3.5% over the 20 period then the property owner will be no wealthier in real terms - the property will have simply kept pace with inflation. So to make them pay tax at 24%, let alone, 39% on the £100,000 "capital gain" is completely unjustified - they should pay no tax at all.
Capital gains tax should only be payable if your wealth has gone up in real terms, after inflation. The capital gains tax system used to protect taxpayers from the ravages of inflation through indexation relief. This was abolished and the top rate was reduced to 18% to provide some protection against paying tax on illusory capital gains.
So if Chancellor Rachel Reeves does increase CGT rates significantly in the October 2024 Budget she will have to introduce some sort of indexation relief like we had in the past - anything else would be simple confiscation.
But of course we cannot rely on any politician from any party to do what's fair! So we wouldn't be surprised at all to see CGT rates increased to some extent in the October 30th Budget. For example, the 24% rate applying to residential property could be extended to all assets and perhaps increased a bit.
Full details of all the October capital gains tax changes will be contained in our bestselling guide for landlords and property investors How to Save Property Tax, which will be released shortly after the Budget.
Apart from increasing capital gains tax rates, Rachel Reeves could also announce other CGT changes including reducing or abolishing certain reliefs like Business Asset Disposal Relief. This relief allows you to sell your business and pay CGT at just 10% on up to £1 million of capital gains.
The information contained in this article is covered in detail in our popular tax guide:How to Save Property Tax by Carl Bayley
