The Chancellor has announced that major changes will be made to the capital gains tax (CGT) regime as part of the Budget, which some analysts have described as "unwelcome".

The main change to CGT will see it aligned with residential property, with a lower rate of 18% and a higher rate of 24%, an increase from 10% and 20%. This change is effective from today.

From April 2025, the rate on business asset disposal relief and investors’ relief will rise from 10% to 14%, and from April 2026, the rate will rise again to 18%.

Chief investment analyst at Charles Stanley, Rob Morgan, said: "It's unwelcome news for investors as the CGT rates for higher and lower rates are increased to 18% and 24%. Gains are added to income when calculating CGT, so large taxable gains taken by basic rate taxpayers, or even non-taxpayers, can mostly be at the higher rate. This will mean more investors will run aground on the rocks of CGT when they take profits.

"The Chancellor will have done her sums on this in terms of setting a rate that is higher but not too high to try to maximise revenue. However, reactions are difficult to gauge. It may backfire in the medium term if people choose to hold onto assets for longer."

The move comes as the Labour Government looks to make up to “£22bn black hole” that it said was left by the Conservative administration.

Managing director at Evelyn Partners, Jason Hollands, said that the changes were "hardly a jack in the box surprise", following previous discussions in the lead up to the Budget.

However, he stated: "If there is a relative silver lining in today’s CGT rise, it is that the worst-case scenario, of aligning CGT rates with those for Income tax which some had called for, has thankfully not come to fruition and the increase is at the lower end of expectations for higher rate taxpayers – though more dramatic for those on the basic rate of tax. A more punitive level of CGT would have undermined the Government’s rhetoric about being pro-investment.

"Nevertheless, higher CGT rates combined with the steep cuts to the annual exemptions in recent years together make for a less investment friendly tax-environment and should focus minds firstly on the importance of utilizing tax wrappers like ISAs and pensions, which protect investments from tax on both capital gains and dividends, and secondly on the use of annual tax-exempt allowances."

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