Chancellor Rachel Reeves visited the US and Canada recently, and during an interview with Bloomberg was asked whether she was considering increases to capital gains tax (CGT).

What has she said?

She replied: ‘We’ve got a budget on October 30^th and we will set out our policy then, but it’s always important when you’re deciding tax policy to strike the right balance. Of course, you need to bring in the revenue to fund public services, but we’ve also got to grow the economy. I won’t do anything that makes it harder to achieve that economic growth and prosperity.’

The Chancellor has ruled out raising VAT, income tax rates or National Insurance rates, but this has added speculation on whether other taxes will be increased.

Last year, Ms Reeves told the BBC that she had no plans for capital gains tax increases. However, since the Labour party came into office, she has claimed that there is a £22 billion shortfall in public finances this year. She has identified some savings, but it seems likely that the gap will also be plugged by raising taxes somewhere.

In addition to changing the rates of capital gains tax, the government could also remove some reliefs to increase their tax take.

Whether there will be any capital gains tax increases, and what they might be, is difficult to predict, but it may be telling that Ms Reeves refused to rule it out.

The current Capital Gains Tax Landscape

Currently, CGT rates vary depending on the taxpayer’s income bracket and the type of asset being disposed of:

– Basic Rate Taxpayers: Generally pay 10% on gains from most assets and 18% on residential property.

– Higher Rate Taxpayers: Pay 20% on gains from most assets and 28% on residential property, although recent changes have reduced the higher rate for property to 24%.

– Comparative Tax Rates: CGT rates are currently lower than income tax rates, leading to discussions about aligning them more closely, which could result in higher CGT rates.

Implications for Small Business Owners

An increase in CGT rates could affect small business owners in several ways:

– Asset Disposal Costs: Higher CGT rates would increase the tax burden on profits from the sale of business assets or shares, reducing net returns for business owners.

– Business Sale Planning: Those considering selling their businesses might face higher tax liabilities, impacting the overall financial outcomes of such transactions.

What could you do to prepare?

It may be worth thinking through the timing of any disposal plans you may have that may attract CGT before the October Budget. Completing these transactions before the 30^th October may enable you to benefit from current CGT rates, before any potential increases are implemented.

Please note – there is no guarantee at this stage that there will be increases in CGT rates. Think carefully before you act, and discuss your own situation with us, or your own accountant before making a final decision.

How likely are CGT increases?

Without a Crystal Ball, it’s impossible to know. However, every week brings news of pay offers to public sector workers, with more likely to follow, and these need to be paid for!

With the previously made promises around VAT, income tax rates or National Insurance rates, the Chancellor has limited options. CGT increases are starting to look like the most obvious choice for an increase.

How can we help?

If you’re thinking about disposing of an asset and would like to know the likely tax cost under the current rules, please get in touch. As always, we’re here to help.

We’ll keep you posted on any updates that may come out between now and the October Budget, and will get our summary out to clients as quickly as possible once we have the details.

If you have any specific questions or concerns, in the meantime, please ask!