Investors will lose more of their profits from the sale of shares after Chancellor Rachel Reeves announced an immediate hike to capital gains tax (CGT) rates.
While the increases were not as high as some experts feared, the changes will still snatch valuable profit from the pockets of UK investors.
CGT is payable on profit after someone sells or disposes of an asset, such as a second home or shares, that has increased in value.
For sales of shares, basic rate taxpayers typically pay 10 per cent on their gains, while higher and additional rate taxpayers must cough up 20 per cent.
But this will now be raised in line with the CGT rates levied on the sale of second homes and buy-to-lets at 18 per cent for basic rate taxpayers and 24 per cent for higher and additional rate earners.
Property owners had a narrow escape from Ms Reeves’s clutches as their CGT rates will not increase.
For investors with a salary above £50,270, a £5,100 capital gain would have attracted tax of £420 after the exempt amount, according to calculations by Faye Church of investment management firm Rathbones Group. But this amount will now rise to £504.
Property owners had a narrow escape from Ms Reeves’s clutches as their CGT rates will not increase (stock)
For sales of shares, basic rate taxpayers typically pay 10 per cent on their gains, while higher and additional rate taxpayers must cough up 20 per cent
Laith Khalaf, from stockbroker AJ Bell, claimed it is ‘odd’ that a Chancellor so focused on working people hiked the charge for basic rate taxpayers the most.
He said: ‘Some will say capital gains tax is paid only by wealthier individuals, and undoubtedly there are some CGT taxpayers who aren’t short of a bob or two. However, many have simply made prudent financial provisions for their future.’
Small shareholders are now also subject to the levy due to swathes of harsh cuts to the tax-free allowance over the past couple of years.
Investors have a tax-free allowance of £3,000 for assets outside of a trust, but they have faced an already punishing couple of years as this has been dramatically slashed from £12,300 in 2022-23.
The changes to the rate are immediate, which will be disappointing to investors who were hoping for breathing room to sell assets at a lower rate – if they had not done so already.
Longer-term stats compiled by the Bank of England indicate that taxes are likely to have been lower all the way back to 1700
But Mr Khalaf said the Chancellor ‘missed a bit of a trick’ in bringing in the move straight away. If the changes were brought in next April, he said, investors would have been likely to sell off their assets in droves ahead of the change and boost the Government’s coffers.
Instead, experts believe investors could hold off sales in light of the rises or even move overseas.
But there are measures investors can take to mitigate their CGT liability, not least equalising assets between spouses or civil partners plus holding assets within an Isa or pension.