Capital Gain Tax Updates

Today Rachel Reeves announced an increase to Capital Gains Tax (CGT), ensuring asset owners pay their fair share whilst keeping the UK tax system competitive. 

Although CGT is increasing, the rate will not effect residential properties of first time buyers. The CGT changes include rising taxes second homes and other vehicles. The updated taxes mean lower rate taxpayers, which are individuals earning £50,270 or under, will see a rise in tax from 10% to 18% and the rate for higher rate taxpayers, earning £50,271 or over, will see a rise from 20% to 24%. 

CGT rates will gradually rise to provide time to adjust to the changes. The tax will be 14% from 6 April 2025 and match the lower rate of 18% from 6 April 2026.

Although these tax increases seem a high increase, the UK still has the lowest capital gains tax rate of any European G7 economy! This means the UK is one of the best investment locations for returns on investments.

Due to these tax rises the amount of rented accommodation available to renters is falling, causing competition for homes and therefore pushing up the cost of renting, creating higher income potential for investors at this time.

How is Inheritance Tax Changing?

Labour stated that inheritance tax rules for property will remain the same until 2030. Currently, any property that is up to £325,000 in value can be inherited tax-free. This threshold rises up to £500,000 when the property is inherited from direct descendants, which include children and grandchildren. Property that is passed down from a spouse is tax-free up to £1 million.

However, from 2027, the inheritance tax is set to see changes to inherited pensions. These changes will come into play when there are unused pension funds or death benefits, as these will be added to the value of an individual’s assets for inheritance tax purposes.

Increased Investments Set to Boost Growth

The announcements in the Budget state there will be increased public investment of more than £100 billion in the next five years. This will help to boost growth and help expansions in private investment in the long run. 

Capital investment will rise by £13 billion in 2025, taking total capital spending to £131 billion in 2025-26. This includes the money that will be invested into improving the UK, such as upgrading transport, delivering 1.5 million homes, and supporting new industries to promote job creation. The Budget also states that the Government will increase investment in public services, recognising that the NHS and education systems are critical to the economy.

The government is partnering with the private sector to accelerate investment, launching the National Wealth Fund to unlock over £70 billion in private capital. Alongside this, a modern Industrial Strategy has been introduced to strengthen investment in sectors that drive economic growth.

What Will the Increased Investment Mean for the Economy?

The chancellor says that the GDP is expected to have seen a 1.1% growth this year, which will rise to 2% in 2025, according to the Office for Budget Responsibility (OBR). 

The further predicted growth is:

  • 1.8% in 2026
  • 1.5% in 2027
  • 1.5% in 2028
  • 1.6% in 2029

The measures in the Autumn Budget 2024 help to build the foundations of the economy and permanently boost economic output in the long run. 

Updates to Stamp Duty Land Tax Rates

The Chancellor has announced a 2% stamp duty rise for second-home buyers and buy to let investors that will come into effect from the 31st of October 2024. This will take the rate from 3% to 5%.

First-time buyers can continue to take advantage of a higher raised stamp duty threshold, allowing them to avoid stamp duty on properties costing up to £425,000. However, for properties priced between £425,000 and £625,000, a 5% tax is applied on the portion of the property over £425,000. Normal stamp duty rates apply for properties costing over £625,000.

For those moving homes, the £250,000 stamp duty threshold remains, meaning no tax is charged on the first £250,000 of a property purchase for home movers. However, if the home costs between £250,000 and £925,000, you need to 5% for the portion over £250,000. The tax rises to 10% if a home is valued between £925,000 and £1.5m, and if a house is worth over £1.5m, you’ll need to pay 12% on the portion over £1.5m.

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