Capital gains tax rises - our view

The rise in capital gains tax rates is less significant than many commentators had feared, with the increased tax burden instead borne primarily by businesses directly (through increased employer national insurance costs), rather than borne by shareholders.

The further changes to shareholder reliefs are perhaps not surprising, given the wider trend of these reliefs becoming increasingly more restrictive (and increasingly more difficult to qualify for) over the last few years. An uptick in M&A activity for owner-managed and family-owned businesses (as we have seen in advance of this Budget) should be expected prior to the changes in rates applying to those reliefs taking effect on 6 April 2025 and 6 April 2026, particularly when combined with the changes to IHT business property relief from 6 April 2026, with the usual caveat that this will be subject to any anti-forestalling measures introduced.

There remains a significant differential between the income tax rates (up to 45%) and main capital gains tax rates (up to 24%), meaning that existing equity incentive arrangements, such as tax-advantaged option plans (which are designed to benefit from the capital gains tax regime) are expected to remain very attractive. Other shareholder tax reliefs in the form of S/EIS and the (now harder to access) Employee Ownership Trust regimes are also more attractive in terms of being able to deliver a larger tax saving as a result of the rate increases.