Why Rachel Rickard Straus Is Acting Before Budget Tax Changes

A hefty tax that many people have rarely needed to consider could soon affect far more households, with some bills potentially soaring almost overnight.

The Government is reportedly considering an increase in capital gains tax (CGT) as it looks for ways to raise much-needed revenue.

CGT applies when you sell an asset for more than you paid for it. The Government takes a share of the profit, although several exemptions and allowances apply.

There is no CGT to pay when you sell your main home for more than its purchase price, but the tax can apply to other properties you own.

Investments held inside an Isa are also sheltered from CGT, while other investments may trigger a bill. Tax can even be due when selling valuables such as classic cars, paintings or jewellery.

With just over a month remaining before the Budget, a growing number of think-tanks, ministers and other organisations are urging Chancellor John Healey to raise CGT rates and bring them into line with income tax.

Under the proposed alignment, the rate for basic-rate taxpayers would rise from 18% to 20%, while higher-rate taxpayers could see their rate jump from 24% to 40%.

It would be the second increase in two years, following the latest rise introduced by former Chancellor Rachel Reeves as recently as April.

CGT receipts are already at record highs. The Treasury collected £24.2billion in 2024/25, representing an 89% increase in just 12 months.

Initially, the tax was paid mainly by wealthier investors. However, smaller investors are increasingly being caught as the previous Conservative government cut the annual CGT allowance from £12,300 to £6,000 and then to £3,000 in quick succession.

The number of people paying CGT rose by 45% to 584,000 in 2024/25.

Some may argue that matching CGT with income tax is fair, on the basis that investors should pay tax at the same rates as people earning wages.

After all, buying an asset, waiting for its value to increase and then selling it may appear to require less effort than working through the day or night.

Yet a growing number of financial experts say investors need an incentive to risk their money and should be rewarded for taking an entrepreneurial chance. Jason Hollands of Evelyn Partners is among those raising concerns.

“Investing involves putting your capital at risk,” he says. “There is no guarantee a business will succeed and investments can make a loss. That is very different to getting a salary.”

Hollands also highlights HMRC modelling indicating that a 10% increase in CGT could actually reduce the amount of tax collected.

That is because people may take steps to limit their liability, such as holding on to assets instead of selling them.

Figures released yesterday suggest this behaviour may already be emerging. CGT receipts came to £915million between April and August this year, £8million lower than during the same period a year earlier. Arguably, however, one of the biggest problems with a higher CGT charge is that it can amount to a tax on inflation.

For example, someone who bought a buy-to-let property or holiday home for £100,000 a decade ago and sells it today for £140,000 appears to have made a £40,000 gain. The taxman would then seek a substantial share of that profit, even though rising prices have reduced the value of the money over the intervening years.

But over that decade inflation has been running hot, which means that your property is worth no more in real terms than it was when you bought it. You haven’t made a profit at all.

So, if you’re worried you may be hit by another CGT attack in the Budget, what can you do?

First, it is rarely sensible to act on speculation – you don’t want to do things that you’d regret if nothing is announced on the Budget on October 28.

However, if you’re already in the process of or have decided to sell something that would incur a capital gain, it may be worth getting a wriggle on. 

When Reeves increased the CGT rates she did it overnight – there’s nothing to stop Healey doing the same.

I’m currently selling a property and admit I’ve been pretty lackadaisical about getting it tied up. But now, by hook or by crook, I’m determined to get it done by the Budget.

The rates may not go up but it’s a reasonably safe bet that they won’t go down.

If you hold investments outside of a stocks-and-shares Isa and have some of this year’s allowance left, you can sell them and buy them again in an Isa wrapper. 

This process is called Bed and Isa and can be taken care of by your investment platform.

If you’re married or in a civil partnership, you can also move assets between you to take advantage of both of your CGT allowances. This can also be helpful if one of you pays a lower tax rate.

Take advantage of your tax shelters – both Isas and pensions – when investing.

Investors may also consider selling shares gradually to take advantage of each year’s allowance. However, this needs careful consideration and ideally professional advice.

Finally – and this is not necessarily advisable but likely what countless people will do – you can hang on to your investments and belongings even if you no longer need them and it no longer suits you to hold them.

That’s because your capital gains tax bill currently dies with you. When you pass on assets, your loved ones will pay inheritance tax, not capital gains.

But let’s not shout that bit too loudly – or we risk a Chancellor one day eyeing up capital gains on estates, too.

What are your thoughts on the upcoming Budget?

rachel.rickard@dailymail.co.uk