Rachel Reeves's Tax Increases – Part 2 Capital gains tax (CGT)

Firstly, CGT punishes the “disposing” of an asset. Disposals cover selling or giving away assets or transferring assets to someone else. Exceptions include disposals to one’s spouse and the sale of a main residence.

Basic rate income taxpayers tax now suffer CGT at 20% (up from 10%) and higher rate taxpayers suffer CGT 24% (up from 18%).  The annual CGT exemption has halved – from £6,000 to £3,000. (All these changes apply to the tax year 24/25 onwards.)

The Chancellor has so far resisted the temptation to meddle with the ISA subscription limit , £20,000 p.a. But by reducing the annual CGT exemption to £3,000 p.a., she has effectively closed the door on those who are accustomed to selling down their General Investment Account (GIA) in order to fund their annual ISA subscription. This is particularly relevant to Higher rate income taxpayers who have held stocks for a long time. Here is a simplified example.

Harry is a higher rate tax income taxpayer who owns a GIA worth £400,000. He has had it for 10 years and every stock shows an uncrystallised gain of 100%. He has no cash resources. Some 2 years ago, utilising the then £12,300 CGT exemption, he could have raised £20,000 from his GIA without paying CGT. Now, supposing he wants to raise £20,000 from his GIA for his 2025/26 ISA, assuming a 100% gain; after deducting the paltry £3,000 annual exemption, he will pay CGT of £1,680 ( £10K capital gain minus £3K = £7k x 24%).

Business asset disposal relief (BADR)

Business Asset Disposal Relief (BADR) up until March 2020, BADR had a very significant impact in CGT payable by trading businesses including Farmland Forestry and Shares in a trading company. The easiest way of understanding the effect of BADR is to look at the example below. This assumes a “higher income tax rate” individual makes a capital gain of £10m: -

You will see from the example that as BADR decreases so the total cost of CGR goes up. And to be fair to Rachel Reeves, it was not her but the Conservatives who enacted the most dramatic reduction in BADR back in March 2020.

Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT)

I appreciate that in this article on CGT - and in my previous article on Inheritance Tax (IHT) - I have been rather downbeat about the present rates of UK taxation. In my next article, I will discuss two legitimate ways of reducing both these taxes. Whilst they are both classified as higher risk, these two types of investment are a perfectly legal and sensible means of reducing your tax burden.

Conclusion

CGT used to be a problem restricted to the wealthy, but now it has a much wider reach. This is particularly true for self-employed entrepreneurs. Why would you want to work every hour God gave you, taking risks every day, being heavily taxed “on the way, " only to be clobbered again on exit?  In a recent wide-reaching interview, the Pottery entrepreneur, Emma Bridgewater, bemoaned Rachel Reeves’s tax increases – especially her increase in NIC paid by employers?

“That’s just politics by people who have never had another job. I mean, if you had ever employed people, you’d know that [the NI hike] was a really, really bad idea. Whacking up NI was not sensible – they think we can pass it on to the customer, but no, we can’t.” 

This quote refers specifically to increases in employers’ NIC, but realistically, it could equally apply to all her other tax hikes, including CGT.

Andrew Hamilton CTA Dip PFS

July 31st 2025