In preparation for the October 28 Budget, Chancellor John Healey may implement a significant increase to capital gains tax. This move follows a period where such tax receipts reached a record £24.2 billion.

Advertisement

The £24.2 billion windfall and the shrinking £3,000 allowance

The UK Treasury is seeing a massive surge in revenue from asset sales. As the report notes, capital gains tax receipts hit £24.2 billion in 2024/25, representing an 89 per cent increase over just one year. This influx of cash comes at a time when the number of people paying the tax has jumped by 45 per cent,reaching 584,000 individuals.

The tax-free threshold for investors has also been steadily eroding.. The annual allowance was previously reduced from £12,300 to £6,000, and has since fallen to just £3,000. This contraction means that even modest gains on assets like second properties, jewellery, or classic cars are increasingly likely to trigger a tax bill.

A leap to 40% for higher-rate taxpayers

Proposals currently being discussed aim to align capital gains rates with standard income tax brackets. According to the report, this could see basic rate taxpayers move from 18 to 20 per cent, while higher rate taxpayers could see their rate jump from 24 to 40 per cent. Such a shift would represent the second major hike in two years , following changes implemented by former Chancellor Rachel Reeves in April.

Why Jason Hollands warns a 10% hike could backfire

Jason Hollands of Evelyn Partners warns that aggressive tax hikes could discourage the very risk-taking the economy needs. He notes that unlike a steady salary, investing involves significant capital risk with no guaranteed return. Furthermore, critics argue that these taxes often function as a penalty on inflation. For instance, a property owner might see a £40,000 paper profit on a decade-old asset, yet in real terms, the value remains unchanged due to rising costs.

HMRC modeling indicates that a 10 per cent increase in capital gains tax might actually lead to lower total receipts. This occurs because taxpayers may choose to hold onto assets rather than selling them to avoid the higher cost. The report suggests that recent figures already reflect a cooling trend, with the CGT bill between April and August falling by £8 million compared to the same period last year.

Will Healey repeat Rachel Reeves' overnight rate changes?

Investors are left wondering if the Chancellor will mirror the tactics of former Chancellor Rachel Reeves. The report highlights that Reeves implemented rate increases overnight, leaving little time for taxpayers to adjust their portfolios.. This uncertainty makes it difficult for those currently selling assets to decide whether to accelerate their sales or wait for the Budget outcome.

To mitigate potential impacts, experts suggest several strategic moves. These include:

  • Bed and ISA: Selling investments and immediately rebuying them within an ISA wrapper.
  • Spousal Transfers: Moving assets between married couples or civil partners to utilize dual allowances.
  • Gradual Sales: Selling shares incrementally to stay within the annual allowance.

    • However, the timing of such moves remains a gamble if the October 28 Budget delivers a sudden, unannounced shock to the system.