Is another capital gains tax rise on the horizon?

Rachel Reeves is in the bad place. The Chancellor reportedly faces a £51bn black hole in the public finances, and economists say that tax rises in the forthcoming Autumn Budget are her only way out. One of which, experts warn, is likely to affect capital gains tax (CGT).

The Treasury has been leaning on CGT to raise money. Last October, the lower CGT rate rose to 18% for basic rate taxpayers (the higher rate increased to 24%). 

Entrepreneurs benefit from Business Asset Disposal Relief (BADR), which allows them to sell all or part of their business at a reduced rate of 14%, up to a lifetime limit of £1m. But, from 6 April 2026, this rate will rise in line with the normal CGT rate of 18%.

With this change set to add strain to already struggling businesses, experts are now warning that further increases to CGT could be disastrous for the UK’s M&A market.

What is capital gains tax?

CGT is paid on the profits when assets (including business entities, properties, equipment, or shares) are sold. It’s often described as a voluntary tax, because individuals can defer it by simply choosing not to put an asset up for sale.

CGT is arguably a more palatable tax rise over compulsory duties such as VAT. That might have been the Chancellor’s thinking when she raised rates in the 2024 Autumn Budget. 

That said, CGT has not proven to be reliable income for the government in recent years. At the end of July, HM Revenue & Customs released data which showed the government’s CGT take fell 18% in the 2023-24 fiscal year. 

That’s despite the annual tax-free allowance – the amount of gains you can make on a sale before paying tax – falling from £12,300 to £6,000 in the same period.

The tax-free allowance was once again halved to £3,000 in 2024 to further boost receipts. If the latest HMRC figures are anything to go by, this is unlikely to fill government coffers.

Rise “could collapse CGT receipts”

The problem with raising an involuntary tax rate is obvious: individuals affected by the rise will simply seek out ways to avoid paying it. In the case of CGT, that means prolonging the sale of a business. 

Peter Mardon, Head of Company Commercial and Director at law firm WSP Solicitors, says “in terms of raising revenue, the government’s CGT rate increases have been a failure.”

Mardon says many of his clients now plan to sell this tax year, before the rise in rates, or else hold off until 2029 when they expect a new Chancellor with more CGT-friendly policies.

It’s a delay, he warns, that will depress the UK’s mergers and acquisitions market and collapse CGT receipts “just when the government is most desperate for tax revenue”.