Budget 2024: immediate hike in CGT rates – The lower and higher rates of capital gains tax (CGT) will be increased from 30 October 2024 which could lead to a mass sale of assets and a huge increase in tax receipts
Less than 1% of adults in the UK contribute to CGT, with £572m being collected in the last quarter.
There are two rates for CGT, the lower rate of 10% will rise to 18%, while the higher rate of 20% will rise to 24%.
The rate increase is not as large as many expected in the tax profession.
Many of those in professional services have been working tirelessly in recent weeks to complete transactions pre-budget day, anticipating an immediate change in the CGT rates. That has proved correct.
Those who completed transactions yesterday have effectively saved 4% in CGT compared to those completing today. The 24% CGT means the UK remains relatively competitive compared to other developed countries. The predicted exodus of business owners overseas if the CGT rate became unpalatably high is now unlikely to happen.’
For business asset disposal relief (BADR) and investors relief, these will both increase over time to match the lower rate, being increased to 14% from April 2025, then to 18% in April 2026.
The change is a blow for investors. This could have been worse, with suggestions of a doubling of the rate, but it’s scant consolation for anyone hit with a bigger tax bill.
It comes on top of the slashing of the tax-free allowance over the past couple of years from £12,300 a year in 2022/3 to just £3,000 in the current tax year. Investors also have to cope with the fact that frozen income tax thresholds have pushed more people into higher rate tax – automatically pushing up their capital gains tax rate.’
The Treasury has predicted this will increase CGT receipts by £90m for the rest of this year. From 2025 this rises to £1.44bn, then decreasing slightly to £1.37bn in 2026/27, and to £1.35bn in 2027/28. This then increases to £2.18bn in 2028/29 and to £2.49bn in 2029/30. A huge increase to CGT receipts of £9.9bn over five years.
Expectations of a hike in CGT were well trailed ahead of the Budget and so today’s confirmation that the main rate of CGT will rise from 20% to 24% for higher and additional rate taxpayers, and from 10% to 18% for basic rate taxpayers are hardly a jack-in-the-box surprise.
What is a surprise, is that the new rates apply from today. A mid-year tax rise is highly unusual and while there is precedent from former Tory Chancellor George Osborne’s June 2010 Budget, this saw the increases applied from midnight rather than the day itself. This means that anyone who sold shares this morning, hoping to avoid a hike, will probably be hit by the higher rates.’
A positive here though is that the rate of CGT for residential property disposals of 18% and 24% will remain the same.
Additionally, ‘rules will also be introduced that apply to forestalling arrangements entered into in respect of unconditional but uncompleted contracts before 30 October 2024, and for Business Asset Disposal Relief and Investors’ Relief, where a contract is made from 30 October 2024 to 5 April 2026 and completed from 6 April 2025,’ said the Treasury.
The rise on CGT is expected to impact 264,000 people in 2025/26, but anyone liable to CGT in this financial year will have to assess their gains for before and after 30 October 2024 to ensure their tax returns are correct.
Also, the increased rates of CGT mean that HMRC will have to update its IT systems, at an estimated cost of £600,000.