The lower and higher main rates of capital gains tax and the rate of CGT applying to carried interest are set to increase in April 2025. Although this is a lower increase than anticipated, those that support UK companies and innovation will be affected.
The lower and higher main rates of capital gains tax (CGT) will increase to 18% and 24% respectively for disposals made on or after 30 October 2024. The rate for business asset disposal relief and investors' relief will remain at 10% on gains of £1 million for this year, increasing to 14% from 6 April 2025 and will match the main lower rate of 18% from 6 April 2026.
The rate of CGT applying to carried interest will increase to 32% from 6 April 2025 and then the carried interest regime will move to the income tax framework from 6 April 2026 onwards, with a consultation in the meantime on what qualifies as carried interest. Carried interest is the portion of profits that private equity managers receive from a successful deal.
It appears that this increase was lower than anticipated. This may have been as a result of widespread criticism when potential reforms to end the carried interest tax regime were first mooted, in the build up to the Budget.
Despite a lower increase than anticipated, this rate is now higher than that of Spain, Germany and Italy, and with further planned reforms in 2026 this rate could be increased to that higher than France at 34% and US at 34.7%.
We must recognise that the individuals affected are those that support UK companies and innovation. Therefore, further reform may lead to private equity managers considering deals overseas, which could impact the UK’s reputation as a central hub for private equity investments and transactions.
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