Autumn budget announcements on capital gains tax and stamp duty rises hailed as ‘unpalatable’

Chancellor Rachel Reeves unveiled Labour’s first budget since being elected to government – with a focus on slashing national debt, boosting the UK economy and protections for working Brits – however the budget has been met with criticism from the legal sector. 

Second-home buyers face a stamp duty land tax surcharge rise of two percentage points – to five per cent – starting from Thursday 31st October.

The Chancellor pledged: “This will support over 130,000 additional transactions from people buying their first home, or moving home, over the next five years.”

The increased rates come into effect for transactions which complete or which are substantially performed on or after 31 October 2024.

Transitional rules will apply so that contracts which were exchanged before 31 October 2024 but which are completed or substantially performed after that date continue to pay the surcharge at 3 percentage points above the residential rates in force at the effective date of transaction.

Transitional rules will also apply so that contracts which were substantially performed before 31 October 2024 and which complete on or after that date do not have to submit a further SDLT return or pay additional tax on completion where an additional tax liability arises solely:

  • due to the changes announced at Autumn Budget on 30 October 2024, or
  • due to a combination of those changes and substantial performance having taken place during a temporary relief period (either the period between 8 July 2020 and 30 September 2024, or the period between 23 September 2022 and 31 March 2025).

Tom Minnikin, partner at Manchester tax consultancy Forbes Dawson, said:

“Probably the worst kept secret of this Budget, it will come as no surprise to employers to find that the Chancellor has increased their National Insurance contributions.

“In their manifesto, the Labour Party said they would ‘not increase National Insurance’ and yet they have done exactly that, lifting the rate of employers’ contributions from 13.8 per cent to 15 per cent from April 6, 2025.

“Admittedly, the manifesto promise was prefaced with a reference to ‘working people’. However, some will see this as pure window-dressing, especially if it causes employers to limit wage increases at the next pay round.

“Reducing the secondary threshold – the point at which employers start to pay National Insurance on an employee’s earnings – from £9,100 to £5,000 was a surprise move. This means employers will have to pay an additional £615 in National Insurance for every employee who earns £9,100 or above.

“These changes amount to a tax on jobs and may lead businesses to reevaluate their expansion plans in light of the decision.”

Labour’s autumn budget saw the Finance Minister announce an increase in capital gains tax to 18 per cent and 24 per cent for different earners, which she promised would ‘raise £2.5 billion for the economy’. The carried interest rate rises to 32 per cent for fairness in the fund management sector.

The changes have been designed to “promote business growth and wealth creation while supporting public finances”.

Labour has revealed plans to raise capital gains tax rates, aligning them more closely with property taxes. Rachel Reeves said the revised would drive economic growth while generating crucial revenue for public services.

The Chancellor pointed out that despite the CGT increase would retain the UK’s position as 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 per cent.

He also spoke on the CGT rate increase saying: 

“It comes as no surprise that Rachel Reeves has decided to increase capital gains tax, having been widely speculated in the run up to today’s Budget.

“There were fears that the Chancellor might have sought to align capital gains tax with income tax. However, Ms Reeves has opted for more modest increases, with the basic rate increasing from 10 per cent to 18 per cent and the standard rate moving from 20 per cent to 24 per cent from today.

“In making these changes, the Chancellor may have deliberately avoided the obvious ‘Halloween Horror’ headlines.

“It is likely that the government has been advised that more substantial increases would have had a disincentive effect, particularly if it led wealthy individuals to leave the UK for lower tax jurisdictions.

“Ms Reeves has probably pitched it about right in preventing a mass exodus, although there will be some for whom the changes are unpalatable.”

 

Changes to CGT have also been suggested to have a negative impact on property investors, along with the changes to stamp duty on second homes. Minnikin continued:

“Both the Prime Minister and Chancellor had suggested ahead of this Budget that landlords would be the target of tax rises. However, Rachel Reeves has opted to largely leave property investors alone.

“There was no increase in capital gains tax on residential property gains, even though capital gains tax was increased for other types of assets. Main rates of capital gains tax have now been aligned at 18 per cent for basic rate gains and 24 per cent for higher rate gains.

“However, the Chancellor did increase the Higher Rate for Additional Dwellings in Stamp Duty Land Tax on purchases of second homes, buy-to-let residential properties, and companies purchasing residential property, from 3 per cent to 5 per cent from tomorrow.

“Property investors will dislike the increase in stamp duty, but overall they have got off fairly lightly compared to others at this Budget.”

 

 

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