A UK Autumn Budget is slated for late October and, given the country's stretched public finances, further tax rises could be in the works. Already, increases have led to rising revenues in areas such as capital gains.

Record capital gains and tax levels have been disclosed by the UK’s revenue authority for the 2024/2025 tax year, suggesting that changes to capital gains tax rates encouraged investors to sell.

HM Revenue and Customs figures show £127.3 billion ($173 billion) in total gains, surging by 82 per cent on a year earlier. CGT liabilities soared by a slightly higher degree to £24.2 billion, up 89 per cent.

“It seems likely we are seeing the reaction of investors to firm expectations that there would be increases in CGT rates at the 2024 Autumn Budget, as well as the announcement that Business Asset Disposal Relief (BADR) rate would increase from April 2025,” David Little, partner in financial planning at wealth management firm Evelyn Partners, said. 

Rising taxes burdens, caused by freezing tax thresholds on income tax, widening the scope of inheritance tax, and increasing employers’ National Insurance levies, are cited by government critics as causes of sluggish economic growth. The previous UK finance minister, Chancellor of the Exchequer, Rachel Reeves, justified such measures as necessary to close a “black hole” in public finances, a claim that caused considerable political controversy. (Reeves resigned on 20 July after Sir Keir Starmer resigned as Prime Minister.)

The total number of CGT taxpayers in the 2024 to 2025 tax year increased by 45 per cent from the previous year to an all-time high of 584,000.  

“Never have UK investors realised more gains or paid more tax in a financial year,” Little said. 

With eyes turning to John Healey, Chancellor of the Exchequer, and his forthcoming Budget on 28 October, one possibility is that he might hike CGT closer to income tax rates. UK public coffers are under strain as public spending continues to rise, sparking concerns about the cost of servicing public debt. 

Evelyn’s Little said some clients crystallised capital gains ahead of the first budget of the government in late October 2024. CGT rose with immediate effect on 30 October to 18 per cent from 10 per cent for basic rate taxpayers and to 24 per cent from 20 per cent for those on the higher rates of tax.

“Crucially, disposals at that time were made against a background of consecutive yearly reductions to the Annual Exempt Amount – the tax-free allowance that taxpayers can realise in gains before paying CGT – from £12,300 to £3,000, which left investors with far less protection against taxable gains,” he said.

“HMRC itself notes that as many as 163,000 taxpayers were brought into the scope of CGT by the consecutive reductions in the AEA implemented on 6 April 2023 and 6 April 2024. Altogether in [the] 2024/25 tax year, those cuts to the annual CGT allowance resulted in an additional £4.8 billion of gains being charged to CGT,” he continued. 

“For UK investors, all this points towards the importance of using tax-protected wrappers where possible for their investments, including ISAs and pensions. It also highlights the wisdom of using up, where appropriate, the £3,000 annual exemption each year to realise gains tax-efficiently over time,” Little said.

Possible tax rises
One option, media reports say, is that the government could bring capital gains tax into line with income tax bands. For example, the 18 per cent and 24 per cent rates currently paid on gains will come into line with income tax bands of 20 per cent, 40 per cent and 45 per cent. 

Knight Frank, the property consultancy, said that for someone in the 45 per cent income-tax band, the top rate would rise from 24 per cent to 45 per cent; a £1 million gain would generate roughly £210,000 more CGT before allowances and reliefs.

“The behavioural impact of such a change could be huge, both in terms of wealth flight or investors sitting on assets to avoid realising gains,” Liam Bailey, global head of research at Knight Frank, said. 

He said the UK Treasury previously estimated that a ten-percentage-point increase in the higher rate of capital gains tax would cost the exchequer about £3.6 billion by 2028/29.

“Of course estimates like that are highly uncertain, which is another reason why relying on taxing the wealthy to maintain a wafer-thin amount of headroom relative to the government's self-imposed fiscal rules is so risky,” he said. “Even the Office for Budget Responsibility has warned that "higher earners’ behavioural responses to tax changes are more uncertain and potentially higher than assumed in costings... a growing reliance on this small and mobile group of taxpayers therefore represents a fiscal risk."