Capital gains tax in the United Kingdom

[1] The capital gains tax (CGT) system was introduced by Labour Chancellor James Callaghan in 1965.

Channon observed that one of the primary drivers to the introduction of CGT in the UK was the rapid growth in property values after World War II.

This led to property developers deliberately leaving office blocks empty so that a rental income could not be established and greater capital gains made.

[5] Labour Chancellor Gordon Brown replaced indexation allowance with taper relief in 1998 to reward risk-taking and promote enterprise.

Indexation allowance generally reduced the tax payable on a gain by increasing the cost of the asset in line with inflation.

Taper relief reduced the tax payable on assets that were owned for longer periods of time and its removal was necessitated, at least in part, because the UK government felt that private equity firms were making excessive profits by benefiting from overly generous taper relief on business assets.

[10] From 6 April 2016, George Osborne announced new lower rates of 10% (for basic taxpayers) and 20% (for higher taxpayers) for non-property and non-carried interest disposals; the higher rates continued to apply to gains on residential property, other than the main home.

[11] Trustees or personal representatives for the estate of someone who has died pay 28% on residential properties and 20% on other chargeable assets.

[14] In her October 2024 budget, incoming Labour chancellor Rachel Reeves increased the lower and higher rates to 18% and 24% with immediate effect, bringing them into line with the tax on property sales.

Under the first option, there would need to be appropriate relief for indexation, adequate interaction with company tax positions and more flexibility for use of losses.

In any case, it was concluded that consideration should be put towards reducing the Annual Exempt Amount from its level of £12,300 in the tax year 2022-23.