Rachel Reeves, the British finance minister, announced on Wednesday, October 30, a significant increase in the capital gains tax rates for the majority of assets, such as equities and cryptocurrencies.
The tax rate will increase from 10% to 18% at the lower rate and from 20% to 24% for higher earners under the new plan.
Reeves predicted that these modifications will generate £2.5 billion, which will harmonize capital gains tax with the rates currently in effect for property transactions, which will remain constant at 18% and 24%.
Reeves provided an explanation of the rationale behind the tax modifications: “We must increase revenue to finance our public services and restore our public finances, while simultaneously promoting entrepreneurship and wealth creation that will drive development.” She also underscored that the United Kingdom will continue to have “the lowest capital gains tax rate of any European G7 economy” despite this increase.
Profits that surpass £3,000 from the transfer of an asset are subject to capital gains tax. Rates are contingent upon the amount of the gain and the individual’s income tax classification.
Reeves disclosed an increase in the rate levied on carried interest, which is income that fund managers earn based on the profits of investments, in addition to the general capital gains tax hike. The new carried interest tax will increase from 28% to 32%.
Although Reeves recognized the critical role of the fund management sector in the UK economy, he also recognized the necessity of a “more equitable” approach to taxation carried interest.
For entrepreneurs, there is a small respite: the Business Asset Disposal Relief lifetime limit will continue at £1 million, and the rate will remain at 10% for the time being. Nevertheless, there are forthcoming modifications—this rate is anticipated to rise to 14% in April 2025 and 18% in 2026-27. The purpose of this modification is to guarantee that entrepreneurs invest in their enterprises and progressively increase their revenue.
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