The Chancellor, Rachel Reeves, has announced that both the higher and basic rates of capital gains tax (CGT) are set to increase from today (30 October).

In her Budget speech, Reeves revealed that the higher rate of CGT will rise from 20 per cent to 24 per cent, while the lower rate of CGT will increase from 10 per cent to 18 per cent.

"The government’s decision to immediately raise the taxable rates of CGT to 18 per cent for the basic rate and 24 per cent for the higher rate will have significant repercussions for a wide range of investors, primarily those holding shares," said Quilter tax and financial planning expert, Rachael Griffin.

"While this move is aimed at boosting revenue, is likely to have the opposite effect, as it discourages investment and leads to reduced economic activity across key sectors."

Meanwhile, the rates on residential property will remain at the same levels of 18 per cent at the lower rate and 24 per cent at the higher rate, while Business Asset Disposal Relief will remain at £1m.

While the rate for Business Asset Disposal Relief this year will stay at 10 per cent, it will rise to 14 per cent in 2025 and 18 per cent in 2026.

Speculation had been rife that the government would target CGT in the Budget as it seeks to raise funds to plug a ‘£20bn black hole’ in public finances.

Copia Capital warned that the changes would have “notable implications” for advisers with clients who are holding assets within managed portfolio services (MPS) outside of tax wrapped, not least the ‘foreseeable harm’ rules under the Consumer Duty.

“The rise in CGT will particularly impact high-net-worth individuals and investors, making it more likely these investors will exceed their allowance and pay tax on their investment gains each year,” said Copia head of sales, Tony Hicks.

“The Consumer Duty mandates that firms actively work to prevent such an adverse outcome for clients that could have been foreseen and acted on.”

While there had been rumoured the increase in CGT rates would be larger, the change was described as a “blow” for investors by Hargreaves Lansdown head of personal finance, Sarah Coles.

“This doesn’t just affect those who are hit with a far bigger bill, it also makes investment less attractive for newcomers who don’t want to have to get to grips with a new tax risk,” Coles stated.

“Already far fewer people in the UK invest than elsewhere in the world, and this could compound the problem.

“For existing investors, there’s a danger this will drive investor behaviour, and people will focus on tax considerations, rather than the investments that make the most sense for their circumstances. There’s also a danger they may hoard the assets – possibly until their death.

“It’s disappointing the government has decided to hike this tax without considering counteracting it with changes to taxes on investors more broadly. It means on top of this new tax blow, they pay 0.5 per cent stamp duty on buying shares, one of the highest rates in the G7.”

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