The chief executive of a renowned tax and financial advisory service says the country should prepare for a rise in Capital Gains Tax.

Nimesh Shah, CEO of Blick Rothenberg, says the obvious choice for Prime Minister Sir Keir Starmer to raise funds is by raising CGT. 

He says that currently CGT raises less than 2% of the total tax take – it raised £14.5 billion in 2022/23, and this is £2.5bn down from the previous tax year. 

To improve that tax take, Shah suggests that Chancellor Rachel Reeves could potentially increase the rate of CGT to 25% pr 30% and apply a lower rate, of say 20%, for sales of business assets to support entrepreneurial growth.

Shah continues: “If you are in the process of selling your private business, or a property, you are in the hands of others so can’t fully dictate the timeline. 

“There can be options to crystallise a capital gain under the current rate – but this would essentially mean you are committed to paying the associated tax by 31 January 2026 (if you are taking action in the current 2024/25 tax year) and you would be relying on any transaction completing and receiving the proceeds by then to pay the tax bill.”

He adds that those selling listed shares standing at a capital gain will need to watch out for the CGT 30-day rule if they decide to act now – this means that investors must wait 30 days before acquiring the exact same share or same class of a specific fund.  HMRC implemented this to stop investors who intend to maintain ownership of specific securities from maximising their CGT savings, under the so-called ‘bed and breakfasting’ approach.

And Shah says that the likely CGT changes could also encourage individuals to leave the UK and become non-UK tax resident – if this can be successfully achieved, they would fall outside the CGT net (other than for disposals of UK land).

Blick Rothenberg suggests that as well as raising rates, there are other aspects of the CGT regime that could be reformed. These include: 

– Abolish the £1m business asset disposal relief limit;

– Tax lottery and gambling wins (but you might need to give relief for losses);

– Remove the CGT exemption for ‘wasting assets’ such as wine and classic cars;

– Remove the £3,000 capital gains annual exemption;

– Cap the amount of principal private residence relief someone can claim in their lifetime (although Starmer said during the General Election campaigning that principal private residence would be left alone); and

– Remove the capital gains base cost uplift on death (but this may come as part of reforms to Inheritance Tax.

Shah concludes: “We will have to wait and see exactly what the Prime Minister and new Chancellor decide to do – but given the recent statement and fast pace of other changes, such as VAT on private school fees, it seems inevitable now that the tax cost for many investors and entrepreneurs is only going to go up.”