UK Revamps Capital Gains Tax: A Balancing Act for Growth and Revenue

UK Finance Minister Rachel Reeves announces an increase in capital gains tax rates to 18% and 24% for different earners, raising 2.5 billion pounds. The changes aim to promote business growth and wealth creation while supporting public finances. The carried interest rate rises to 32% for fairness in the fund management sector.

The UK government revealed plans to raise capital gains tax rates, aligning them more closely with property taxes. As finance minister Rachel Reeves explained, the revised rates—18% for lower earners and 24% for higher earners—aim to drive economic growth while generating crucial revenue for public services.

This tax adjustment could bring in an additional 2.5 billion pounds, maintaining the UK's position with one of the lowest capital gains tax rates among Europe's G7 economies. Reeves emphasized the balance between encouraging entrepreneurial ventures and ensuring fairness in the taxation system, particularly in the fund management sector where carried interest taxation will rise to 32%.

While the lifetime limit for Business Asset Disposal Relief remains at 1 million pounds, the tax rate will gradually increase over the next few years. Despite the recent changes, capital gains tax continues to be a significant contributor to government revenue, though it serves primarily to incentivize business investment.

(With inputs from agencies.)