(Bloomberg) -- The UK government has lifted its tax rates on capital gains, with entrepreneurs on the hook for a larger bill when they sell their businesses.
Chancellor of the Exchequer Rachel Reeves said Wednesday that the higher rate of capital gains tax paid on most assets, such as shares, will increase to 24% from 20%, and the lower rate to 18% from 10%. She said the UK would still have a lower rate than other European countries in the Group-of-Seven and insisted the Labour government was keen to promote entrepreneurship.
The hike was not as severe as small businesses had feared. There had been concerns that business asset disposal relief, which applies to gains up to a maximum value of £1 million ($1.3 million), would be scrapped. Instead, Reeves maintained the relief but lifted the rate paid under the policy from 10% to 14% next year and 18% the year after.
“The increase in capital gains tax feels proportionate to the challenges faced by the country,” said Steve Rigby, co-chief executive officer of The Rigby Group, a private technology company and investor which made annual revenue of £3.3 billion in its most recently filed accounts.
Rigby agreed with Reeves’ argument that the UK’s rate remains globally competitive. “However, when combined with the scrapping of non-domiciled status and reforms to carried interest for private equity, there will be a significant impact to a large number of people who pay the most tax,” he said.
‘Meaningful and Painful’
CGT is paid on profits of more than £3,000 when an asset is sold.
“It’s still a meaningful and painful increase for many, and one that could cause business owners to rethink their plans to sell their businesses in the short term,” said Christine Cairns, a tax partner at PwC.
Paul Taylor, chief executive officer of banking software firm Thought Machine, said the increase in CGT was a tax on risk-takers who leave comfortable jobs to start up a new business.
“Raising capital gains tax risks undermining the health and competitiveness of the UK’s capital markets,” said Romi Savova, chief executive officer at PensionBee.
(Corrects rate increase for higher band of capital gains taxes in second paragraph)
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