UK Business Owners Fear Capital Gains Tax Hike Ahead of Budget

Business Owners Express Concern Over Potential Capital Gains Tax Hike

Ahead of the upcoming budget on October 28, 2026, UK business owners are voicing strong concerns about a potential increase in Capital Gains Tax (CGT). A recent survey indicates that a significant number of entrepreneurs might consider leaving the UK or be discouraged from starting new businesses if CGT rates rise. This sentiment highlights a growing tension between the government’s need to raise revenue and the desire to maintain a supportive environment for business growth and investment.

Survey Reveals Potential Impact on Business Decisions

A survey conducted by S&W among 500 business owners revealed that half of the respondents would consider relocating outside the UK if Capital Gains Tax were to increase. Furthermore, 51% of these owners indicated they would consider leaving the country if a wealth tax were introduced. The survey also pointed to a chilling effect on entrepreneurship, with six out of ten respondents stating that a CGT rise would deter them from starting a new business. These findings suggest that tax policy changes could have a direct impact on the UK’s business landscape and its attractiveness to investors and entrepreneurs.

Proposed Tax Changes and Government Response

The specific proposal causing the most concern involves increasing the higher CGT rate from its current 24% to as high as 45%, or aligning it with income tax bands. This potential change comes at a time when the government’s financial flexibility is limited. While the Treasury has not offered direct reassurance on the matter, a spokesperson stated that tax decisions are for the chancellor to announce at fiscal events, rather than commenting on speculation. This approach aims to reduce inaccurate and unhelpful speculation surrounding potential tax changes.

Current CGT Structure and Proposed Adjustments

Currently, the UK’s Capital Gains Tax system has a basic-rate CGT of 18% and a higher and additional-rate CGT of 24%. The annual CGT allowance for the 2026-27 tax year is £3,000. The proposed reforms could significantly alter this structure. One potential reform would equalize CGT with income tax rates, while another would raise the higher rate to 34%. The actual revenue generated from these changes would depend heavily on how investors and business owners react and adjust their behavior.

Economic Arguments and Revenue Projections

Supporters of aligning CGT with income tax argue that capital gains are currently taxed at a lower rate than earnings, which they believe is unfair. Estimates suggest that such a reform could generate substantial revenue, potentially around £14 billion, though this figure might be reduced by behavioral changes. Conversely, other analyses suggest that a sharp increase in the headline rate could lead to a decrease in tax receipts. For example, one estimate projects a revenue loss of £3.5 billion by 2028-29 if the higher rate were increased by 10 percentage points. These competing projections highlight the complexity of predicting the economic impact of tax policy changes.

Political Context and Business Group Warnings

The pressure to find additional revenue sources comes as the Labour party’s manifesto has ruled out increases to income tax, VAT, and national insurance contributions for workers. This has led to CGT, inheritance tax, and other wealth-related taxes being considered. Some prominent figures have advocated for aligning CGT with income tax, arguing it would help finance support for lower earners. However, business groups continue to warn that higher CGT rates could negatively affect investment and business formation. The upcoming budget on October 28, 2026, is expected to provide clarity on the government’s decisions regarding Capital Gains Tax and other fiscal policies.

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