Rachel Reeves will raise capital gains taxes on the sale of shares

Rachel Reeves’ budget will increase the capital gains tax rate on the sale and transfer of shares, other assets and property but not for second homes. The capital gains tax on the profits of selling shares, currently charged at a rate of 20%, will likely increase by “several percent points”. Ministers have talked about going further, but there is concern that people will deliberately delay selling assets to avoid higher rates.

Reeves will also end certain reliefs under the current regime in order to boost potential revenue. She is trying to fix the public finances, and avoid the return of austerity. According to a government source, the revenues generated by increasing capital gains taxes would be “in the low billions”.

The chancellor has decided to leave the capital gains tax rate on the sale and purchase of buy-to let properties unchanged, as it is believed that raising the rate would be costly.

The Office for Budget Responsibility stated that the Conservatives’ decision to lower the tax rate from 28% to 24.5% in the last budget would raise almost $£700,000,000 due the increased number of property transactions.Some people worry that a tax increase on second homes will reduce overall revenue. Only 12 percent of capital gains are derived from the sale or property.

Capital gains tax will be levied if the profit from selling assets exceeds £3,000. However, ISAs and SIPPs are exempt. The tax is paid only by 350,000 private investors a year, despite the fact that there are approximately 12.5 million shareholders.

The Treasury could still earn billions by increasing the capital gains tax rate on the sale shares. Just over half of the revenue comes from unlisted shares of private companies that enjoy an average gain just over £120,000. Comparatively, the average capital gains on the sale listed shares are £18,000.

The boss at Next, who sold £29million of his shares in the homewares company last month, led to speculation from City analysts that this was in anticipation of capital gains tax changes. Prime Minister Sir Keir starmer has indicated that the government is planning to increase capital gains taxes, but he rejected reports that it could reach as high as 39 percent. He claimed that such suggestions were “far off the mark”.

Reeves has been preparing plans to raise taxes and cut spending up to £40billion. This is to avoid austerity measures and cuts in real terms to government departments. The majority of the money must come from tax increases. The Prime Minister faces a backlash from the cabinet , after the Treasury requested departments to prepare plans for “huge cuts” in departmental expenditures.

Angela Rayner – the deputy prime Minister and housing secretary – and Shabana Mahamood – the justice and transport secretaries – have expressed concern about the size of the cuts, as well as the implications for their core budgets.

Treasury sources have pointed out that just because departments were asked to model big cuts in their budgets, it does not mean they will be implemented. Reeves made it clear that austerity will not be returning.

The Labour Party is also looking at plans to reduce how much people can withdraw from their pensions in a lump-sum without paying taxes. Labour considers reducing the current allowance of £268,275 to £100,000. This would generate £2billion. There is some concern that the tax increases planned in the budget may not raise enough money.

Capital gains tax revenues are unpredictable due to the fact that a few individuals can have a major impact. Just 12,000 individuals pay 2/3 of the £15billion raised annually from capital gains taxes. Treasury source: The government will not increase taxes if they result in a loss for the exchequer. They also said capital gains tax “isn’t a magic bullet”.

HMRC estimated that a 10 point increase in capital gains tax would lead to lower revenue for the Treasury. It said that “very large tax rate increases can reduce exchequer revenue due to taxpayer behaviour impacts.”

The Institute for Fiscal Studies stated that any increase in capital gains taxes should be accompanied with reforms of the system. For example, charging capital gains on assets after a person dies.

Stuart Adam, senior economist at the Institute for Fiscal Studies said that simply increasing CGT headline rates would only raise a limited amount of revenue and damage the economy. If the chancellor is looking to raise large sums of money, it’s essential that the rate increase be accompanied by changes in the way taxation works – removing some misguided reliefs and giving more generous deductions to investment costs and losses.

The Treasury has decided to not change the capital gains rate on additional properties, after the Office for Budget Responsibility concluded the reduction in the spring budget would lead to increased house sales and increase income from stamp duties.

The forecaster stated that the reduction in capital gains tax rates on residential property sales from 28 to 24 percent will increase tax revenues cumulatively over the forecast period through two channels.

“First, we anticipate that the lower rate will “unlock” and bring forward some property disposals. We expect that the lower rate will have a permanent but small positive impact on property transactions. The majority of the tax increase from this measure is due to higher SDLT (stamp duty) receipts.”

The largest tax increase in the budget will be the national insurance contribution on employer’s pension contributions. This could generate as much as £12billion.

Reeves will also be looking at the inheritance tax and pension relief in order to balance out the budget.