Capital Gains Tax 2024: What Investors and Homeowners Need to Know

Capital Gains Tax 2024: What Investors and Homeowners Need to Know

As Labour prepares to introduce its first budget later this month, speculation surrounding capital gains tax (CGT) is heating up. According to recent reports, Chancellor Rachel Reeves is expected to raise CGT on the sale of shares and other non-property assets by “several percentage points.” However, CGT rates on second homes and buy-to-let properties will remain unchanged, sparking debate on the government’s strategic decision.

The Current Landscape of Capital Gains Tax

At present, CGT is levied at 20% on profits from the sale of shares and other investments. There had been rumours that the rate could rise dramatically to as high as 39%, but the Prime Minister recently dismissed this. Instead, a more modest increase is expected, aimed at non-property assets such as shares.

For second homes and buy-to-let properties, CGT currently sits at 28%. Concerns have arisen that increasing this rate would harm the property market, as it could slow down transactions and reduce revenues from associated taxes like stamp duty. The Conservative government previously cut CGT on property sales from 28% to 24%, a move the Office for Budget Responsibility credited with increasing property transactions and generating nearly £700 million in revenue

Why Property Owners Are Spared

The government’s decision to leave CGT on property sales untouched has largely been driven by fears that increasing the rate would slow the housing market. When CGT was lowered to 24%, the resulting uptick in property sales boosted stamp duty revenues. Reversing this policy could result in fewer sales, ultimately costing the Treasury money, according to reports in The Times

This move has relieved concerns among second-home owners and landlords, who feared their tax bills would rise significantly. However, it has also led to some criticism from those who believe that the property market, particularly buy-to-let investments, should not be treated differently from other asset classes.

Will Higher Capital Gains Taxes Alter Investor behaviour?

One of the key debates surrounding higher CGT rates is whether they will actually increase tax revenue or simply alter investor behaviour. Financial experts, such as Rachael Gryphon of Quilter, have pointed out that without a delay in implementation, higher CGT could encourage individuals to hold onto their assets longer, reducing the expected surge in tax revenue

Others, like Stuart Adam, a senior economist at the Institute for Fiscal Studies, have warned that merely increasing the CGT rate without making changes to the tax’s structure could limit the revenue raised while also causing economic damage. Adam suggests that to maximise revenue, the Chancellor should consider removing reliefs and offering more deductions for investment costs and losses

On the other hand, some business owners argue that a CGT rise would not significantly affect investment. Julia Davies, a millionaire and innovation funder, stated that tax rates have never dictated her decision-making process, while Graham Hobson, co-founder of Photobox, emphasised that CGT was once aligned with income tax but didn’t discourage him from launching a successful business

What This Means for You

With CGT changes imminent, it’s crucial for both investors and property owners to take stock of their current portfolios. For those with non-property assets, it may be time to consider the impact of a CGT hike on any planned sales or investments. Meanwhile, second-home owners and buy-to-let landlords can breathe a sigh of relief—for now.

Financial experts recommend seeking professional advice to ensure you’re prepared for any changes in the upcoming budget. Whether you’re holding onto shares or looking to buy or sell property, understanding how these tax reforms will affect your assets is key to making informed decisions.

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