Was Rachel Reeves right to raise Capital Gains Tax?
In short: no.
It really was a pointless tax rise that gave the impression of trying to make a political point rather than raising any meaningful revenue.
The Office for Budget Responsibility predicts the changes will raise £2.5 billion a year by 2029-30 after behavioural changes are taken into account. The Treasury will already have raised much of that in the run-up to the Budget amid the intense speculation and fear around the tax being aligned with Income Tax with rates of up to 45 per cent.
Given that Capital Gains Tax raises only £15 billion a year at present, and accounts for less than 2 per cent of total tax receipts, the principle behind a Capital Gains Tax increase felt more important than the economics behind it.
In the weeks before the Budget, most people expected Capital Gains Tax was going to increase; and this set a tone that the UK did not support entrepreneurial risk and investment — two key ingredients required to deliver the Government’s mandate for future growth. The Government’s first Budget made it seem like a Capital Gains Tax rate increase was needed to right a wrong.
This sent the wrong message — a Capital Gains Tax regime that’s fit for purpose should be incentivising and celebrating the right form of investment risk.
Rachel Reeves said she wanted: “entrepreneurs to invest in their businesses” and would retain the £1 million lifetime limit for Business Asset Disposal Relief — but the present 10 per cent rate will increase to 14 per cent in April 2025 and 18 per cent in April 2026.
This was a mistake and a missed opportunity to deliver the right support for entrepreneurs to unleash the growth potential in Britain’s businesses.
Of course, many entrepreneurs and investors will be hugely relieved that Capital Gains Tax went up by a relatively small amount. But the Capital Gains Tax system is a mess, with five different rates and no mechanism to account for inflation. It seemed a missed opportunity from the new Chancellor to reform Capital Gains Tax once and for all and to encourage entrepreneurship and investment.
Would you like to know more?
If you would like to discuss any of the above, please speak to your usual Blick Rothenberg contact or Nimesh Shah using the form below.
Contact Nimesh
You may also be interested in
VAT And Private Education – A Briefing Note For Schools
Parents and employers face a childcare cost crisis
