In a notable shift, British finance minister Rachel Reeves announced on Wednesday, October 30, a rise in capital gains tax rates that will affect most assets, including stocks and cryptocurrencies.
Under the revised plan, the tax rate for lower earners will increase from 10% to 18%, while those in higher income brackets will see a hike from 20% to 24%.
Reeves noted that these adjustments are anticipated to generate £2.5 billion, bringing capital gains tax rates in line with the current rates for property transactions, which will stay fixed at 18% and 24%.
In her discussion regarding the reasons for these tax changes, Reeves stated:
“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.” She also highlighted that, despite this increase, the UK will still maintain “the lowest capital gains tax rate of any European G7 economy.”
Updated UK Capital Gains Tax
Capital gains tax is levied on profits exceeding £3,000 made from selling assets. The rate applied depends on the individual’s income tax bracket and the size of the profit.
Alongside the overall increase in capital gains tax, Reeves disclosed that the charge on carried interest—the earnings received by fund managers based on investment profits—will also rise, from 28% to 32%.
While acknowledging the significant impact of the fund management sector on the UK economy, Reeves stressed the need for a “fairer approach” to taxing carried interest.
Entrepreneurs might experience some relief, as the lifetime limit for Business Asset Disposal Relief will remain at £1 million, maintaining a rate of 10% for the time being. However, changes are on the horizon—this rate is expected to increase to 14% in April 2025 and to 18% in 2026-27. This adjustment aims to ensure that entrepreneurs stay encouraged to invest in their businesses while gradually raising revenue.
The Office for Budget Responsibility (OBR) predicts that these measures will yield an extra £2.5 billion by the end of the forecast period. Last year, capital gains tax contributed £15 billion, making up about 4% of the overall income tax revenue.
Historically, capital gains tax has been set lower than income tax to foster entrepreneurial endeavors, though this has resulted in widespread use of capital gains tax strategies among the self-employed to lower their standard income tax liabilities.
Image Source: mayu85 / Shutterstock
