Tax hike ahead: capital gains tax set to close fiscal gap
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As the UK prepares for its upcoming budget on October 30, speculation is mounting that the Labour government, led by Chancellor Rachel Reeves, will announce an increase in the capital gains tax (CGT) rates. This move is part of a broader effort to address a significant fiscal gap, estimated to be around £22 billion, which the previous government allegedly left behind.
The upcoming budget is expected to introduce changes to the capital gains tax regime, though the exact nature of these changes remains speculative. The government’s goal is to raise necessary funds without hindering economic growth, while also adhering to their manifesto commitments to protect working individuals from increased taxes.
The current CGT rates for higher-income taxpayers range from 20% to 28%, depending on the type of asset being sold. For instance, the sale of shares is currently taxed at 20% for those with higher incomes, while residential properties are taxed at 24%.
Despite the lack of official confirmation, reports suggest that the increase in CGT rates could be several percentage points, although it is unlikely to reach the speculated 39% mark. Prime Minister Keir Starmer has already dismissed this higher figure as “pretty wide of the mark”.
The Treasury, while not commenting on specific tax changes, has been exploring various options to raise revenue. One of the considerations is reducing existing exemptions within the capital gains regime to boost revenues. However, it appears that CGT on the sale of second homes might not be increased, but rather, some of the current exemptions could be trimmed.
This budget, the first since the Labour Party’s election in July, is under intense scrutiny as it will reveal who will bear the brunt of increased taxes and where savings will be made to stabilize the country’s finances. Treasury Secretary Rachel Reeves is reportedly examining tax increases and austerity measures worth up to £40 billion, aiming to balance the need for fiscal stability with investments in public services.
The Labour government has been clear about not increasing income tax, VAT, or National Insurance contributions for working individuals, as per their manifesto commitments. However, they are considering other avenues, such as raising National Insurance contributions for employers, which has sparked controversy over whether this would breach their manifesto promises.
Capital gains tax is a significant source of revenue, generating around £15 billion annually from approximately 350,000 individuals. The tax is applied to the sale of assets such as shares, second homes, and businesses, with the difference between the sale price and the original purchase price (minus allowable expenses) being subject to tax. The annual allowance for CGT is currently £3,000, down from £12,300 since 2020.
The proposal to align CGT rates more closely with income tax rates has been discussed extensively. Currently, income tax rates can be as high as 45%, while CGT rates are significantly lower. Some advocates, including millionaire business owners, support increasing CGT to ensure a more equitable tax system, arguing that it would not deter genuine investors and entrepreneurs.
John Stewart
John Stewart was born in Ireland in 1990. A graduate of Oxford University. At the moment he is a journalist of "The Russian Crimes".
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