Possibility of CGT Rate Hike in Autumn Budget 2024

According to a recent report in The Guardian, the government is mulling raising the Capital Gains Tax (CGT) rate to as much as 39% in the upcoming autumn budget as part of efforts to generate revenue. The report states that officials are thinking of raising the CGT rate to between 33% and 39%.

Can Increasing Capital Gains Tax Help Fill the Public Finance ‘Black Hole’?

Chancellor Rachel Reeves has talked about a £22 billion black hole in UK public finances on numerous occasions. The government has expressed the view that it will need to take painful measures to fill this.

At the same time, the Labour Party had promised in its election manifesto that it would not raise taxes on working people, including Income Tax, VAT and National Insurance. This leaves it with limited options to raise revenue, options that many fear include raising CGT and also Inheritance Tax (IHT). Meanwhile, reports suggest that government officials are racing to present revised CGT and Inheritance Tax (IHT) models to the Office for Budget Responsibility (OBR).

Present treasury modelling indicates that Reeves is exploring higher CGT rates between 33% and 39% and has asked the OBR to evaluate the potential revenue that will be raised from taxing assets like second homes at these rates.

Will Landlords and Investors Continue Selling Assets Ahead of the CGT Hike?

In the current system, profits made by selling second homes are taxed at up to 24%, and profits from the sale of business shares are taxed at up to 20%. These rates are significantly lower than the taxes imposed on wages which can be up to 45%.  

Presently, around 350,000 people pay CGT and contribute around £15 billion to the British economy every year, according to a study by the Institute for Fiscal Studies. Keeping this in mind, it can be assumed that taking the tax rate to 33% can increase that £15 billion amount by a few hundred million pounds. If the government decides to stay in the middle of the projected 33% to 39% range, it could add around £1 billion to the state coffers every year. Also, wealthy investors and property owners could choose to leave the UK entirely.

Increasing the CGT rate to a figure as high as 39% could actually decrease CGT revenue in the long run. Why? Because landlords could scramble to sell their homes and assets before the tax hikes take effect.

The present tax regime requires top-rate taxpayers to pay 24% on gains from second homes (residential property that is not their main home), 28% on “carried interest” from managing investment funds and 20% on other assets. The tax rates are lower for basic-rate taxpayers.

Conclusion

The government is considering raising Capital Gains Tax (CGT) rates to as high as 39% in the upcoming budget. This has led to concerns about impacts on investment and how it could cause a revenue decline over the long run.