With the Autumn Budget approaching there is a lot of speculation as to how the Government might raise additional revenue. Capital Gains Tax (CGT) is one tax increasingly in the spotlight, with speculation that it could be reformed or rates increased.
How does Capital Gains Tax currently work?
CGT applies when an individual makes a taxable gain on the disposal of assets such as shares, investment properties or business interests. The tax is charged on the gain rather than the full sale proceeds.
For the 2026/27 tax year, individuals have an annual exempt amount of £3,000. The standard CGT rates are generally 18% for gains falling within the basic-rate band and 24% for gains above it.
The band that your gain falls into and is therefore taxed is calculated by looking at your income for the year plus the value of your gain(s). If this total falls below £50,270 then it will be taxed at the basic rate (18%), anything above is taxed at the higher rate (24%) unless claims are available to lower the applicable rate (such as Business Asset Disposal Relief – BADR).
The annual exemption is significantly lower than it was just a few years ago: it stood at £12,300 in 2022/23 before being reduced to £6,000 and then £3,000.
Why is Capital Gains Tax in the spotlight?
The Government has committed not to increase income tax, National Insurance or VAT for working people, limiting some of the obvious options for raising revenue. That has increased speculation around taxes on capital, wealth and property.
One possibility being discussed is bringing CGT rates closer to income tax rates. Such a move could significantly increase the tax payable on some gains, particularly for higher-rate taxpayers. There are also reliefs available which lower the rate at which gains are taxed such as Principal Residence Relief which removes or reduces exposure to CGT when you sell a house you live / lived in. Another is Business Asset Disposal Relief lowers the rate of CGT on qualifying business disposals. These are two reliefs which the Government could potentially change in a bid to raise revenues.
No such changes have yet been announced, and we will have to wait until 28 October to see exactly what action the Government takes.
What should taxpayers be thinking about?
Anyone considering selling an investment, property or business may want to review the timing and potential tax consequences of the disposal.
However, reacting to Budget speculation by bringing forward a transaction is not necessarily the right answer. Other considerations need to take place before deciding whether advancing a transaction is the best thing to do. For those people selling a business, there is likely to be a flurry of activity in the leadup to the budget to push through all those deals where it is possible to do so.
Reasons why the Government may not touch Capital Gains Tax?
The current annual exemption of £3,000 is already relatively small and increasing rates of CGT would have important implications for investors, property owners and business owners. Bringing in or enhancing existing reliefs to reduce the exposure to CGT for these investors will come with conditions, and such conditions still have the ability to reduce the rate of investment.
CGT also remains a tax which is in a lot of circumstances is optional – the asset holder often chooses whether or not they wish to sell having considered all the implications of doing so. Increasing rates too much may not therefore yield the additional taxes the Government is looking for.
If you have an asset you are considering selling or transferring, and wish to find out any exposure you have to Capital Gains Tax and possible ways of ensuring the transaction is as tax efficient as possible, please hit the contact button below, provide your details, and we will be in touch very soon.