Business owners will be less likely to invest and ‘take risks’ following an increase in Capital Gains Tax (CGT) in the Budget.
Chancellor Rachel Reeves announced that the lower rate of CGT – which owners pay on profits from selling shares or their business - will increase from 10 per cent to 18 per cent, with the higher rate rising from 20 per cent to 24 per cent. These changes are effective immediately.
Business asset disposal relief will remain at 10 per cent this year, before rising to 14 per cent in April 2025, and to 18 per cent from 2026/27.
“The capital gains tax straight jacket has been pulled steadily tighter for years. Between 2022 and 2024 the tax-free allowance for CGT was cut from £12,300 to £3,000, and the decision to raise CGT rates across the board today will only make matters worse,” said Nicholas Hyett, Investment Manager at Wealth Club. “Capital gains tax is only paid by a minority of, generally wealthier, taxpayers, which probably explains its appeal to the government. However, it also represents a tax on risk taking – since it’s only charged on gains from investments or setting up your own business.”
On Business relief reform Hyett said the changes were less ‘draconian’ than feared with full relief capped at a still fairly generous £1 million and Inheritance Tax falling to 20 per cent thereafter.
Samantha Seaton, CEO of Moneyhub said the changes in CGT will be ‘disappointing to current and aspiring business owners and entrepreneurs, and risks dissuading talent and investment from coming to the UK’. “If we want the UK to continue to be a place of innovation, then we must ensure our taxation, regulation and funding options are aligned with this goal. Only with this support, will businesses be able to grow, innovate and help solve our society’s most pertinent challenges,” she said.
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