In a significant change, British finance minister Rachel Reeves revealed on Wednesday, October 30, an increase in capital gains tax rates applicable to most assets, including stocks and cryptocurrencies.
According to the updated plan, the tax rate will rise from 10% to 18% for lower earners and from 20% to 24% for those in higher income brackets.
Reeves indicated that these modifications are expected to yield £2.5 billion, effectively aligning capital gains tax with existing rates for property transactions, which will remain unchanged at 18% and 24%.
Discussing the rationale for these tax adjustments, Reeves explained:
“We need to drive growth, promote entrepreneurship, and support wealth creation, while raising the revenue required to fund our public services and restore our public finances.” She also pointed out that, even with this increase, the UK will still have “the lowest capital gains tax rate of any European G7 economy.”
Revised UK Capital Gains Tax
Capital gains tax applies to profits over £3,000 earned from asset sales. The applicable rate depends on the individual’s income tax band and the magnitude of the gain.
In addition to the overall hike in capital gains tax, Reeves announced an increase in the charge on carried interest—the income received by fund managers based on investment profits. The new rate for carried interest will escalate from 28% to 32%.
While recognizing the crucial contribution of the fund management sector to the UK economy, Reeves emphasized the necessity of a “fairer approach” to taxing carried interest.
Entrepreneurs may find some relief, as the Business Asset Disposal Relief lifetime limit will stay at £1 million, with a rate of 10% for the time being. However, changes are forthcoming—this rate is set to rise to 14% in April 2025 and further to 18% in 2026-27. This change aims to ensure that entrepreneurs remain motivated to invest in their ventures while gradually increasing revenue.
The Office for Budget Responsibility (OBR) estimates that these initiatives will generate an additional £2.5 billion by the conclusion of the forecast period. Last year, capital gains tax contributed £15 billion, accounting for approximately 4% of the total income tax revenue.
Traditionally, capital gains tax has been lower than income tax to encourage entrepreneurial activities, although this has led to extensive utilization of capital gains tax strategies by the self-employed to minimize their regular income tax liabilities.
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