Capital Gains Tax: The Omission Business Owners Can't Afford to Ignore
Despite Sir Keir Starmer’s repeated and emphatic assurances that a Labour government would not raise income tax, National Insurance, or VAT—describing the party’s fiscal rules as “absolutely ironclad” and “non-negotiable”—his silence on Capital Gains Tax (CGT) remains notable.
This omission should raise eyebrows among SME owners, entrepreneurs, and investors alike. While the Labour leader was clear on protecting earned income from tax hikes, he offered no such certainty when it came to taxes on gains from business sales, investments, or asset disposals.
In a recent interview with ITV’s Political Editor Robert Peston, Starmer was asked directly whether taxes would have to rise in the autumn. His response was far from reassuring:
“I don’t accept the proposition that it’s inevitable things will happen in six months’ time.”
He then pivoted to criticising Liz Truss’s short-lived economic experiment, saying:
“Liz Truss tried the experiment of putting to one side rules and institutions, checks and balances, and it had a huge impact on working people across the country when she crashed the economy. We are not going to allow that to happen for working people,"
While that sentiment may offer political distance, it does little to clarify Labour’s position on CGT—an issue of real concern for business owners considering succession planning, exit strategies, or investment restructuring.
Compounding the concern is the fragile economic backdrop. The Office for Budget Responsibility (OBR) recently warned that escalating global trade tensions—most notably the US’s tariffs—could significantly erode the government’s £9.9bn of fiscal headroom. If retaliatory tariffs follow, as expected, the UK’s already narrow fiscal margin could vanish entirely.
That leaves future governments with limited choices: raise taxes, cut spending, break their own budgetary rules, or a combination.
Autumn Budget 2025: Leading Economists Warn of Likely Tax Rises Ahead
Small and medium-sized enterprises (SMEs) should brace for likely tax increases in the Autumn 2025 Budget, as economists warn that deteriorating economic forecasts and limited fiscal headroom could force the Chancellor, Rachel Reeves, to raise additional revenue.
The National Institute for Economic and Social Research (NIESR) has projected that Reeves is on track to miss her fiscal rules by nearly £63 billion, describing her position as “risky and vulnerable.” This shortfall may necessitate tax rises or spending cuts ahead of the next election.
Much of the current pressure stems from previous tax increases, particularly the rise in employer National Insurance contributions. NIESR says this has had “a damaging impact on economic growth” and is playing “a more dominant role” in harming the economy than even President Trump’s tariffs.
Stephen Millard, interim director at NIESR, warned:
“The chancellor’s self-imposed and arbitrary fiscal rules have led to a situation where twice a year the chancellor has to either find further departmental savings or announce politically unpalatable tax rises. The uncertainty created by this leads to low investment and lower growth, the precise reverse of what the government wants to achieve. We have to rethink the fiscal framework.”
Similarly, the Institute for Fiscal Studies (IFS) cautioned that worsening economic data could leave Reeves with few options. Director Paul Johnson stated:
“There is a good chance that economic and fiscal forecasts will deteriorate significantly between now and an autumn budget. If so, she will need to come back for more, which will likely mean raising taxes even further. That risks months of speculation over what those tax rises might be—a raid on pensions, a wealth tax on the richest, another hike to capital gains tax? I mention those not to commend them, far from it, but to exemplify the kinds of taxes regarding which mere speculation about increases can cause economic harm. With no sense of a tax strategy, we have no idea which way the chancellor might turn.”
This lack of clear tax direction is already having a chilling effect on business investment. NIESR reports that nearly one-third of UK CFOs are now “significantly concerned” about tax rises, double the level seen at the end of 2024.
Tax speculation is also being fuelled by recent reports published during the election campaign. According to The Guardian, internal Labour documents estimated that increasing capital gains tax (CGT) rates could raise £8 billion annually. Proposed inheritance tax reforms targeting agricultural and business relief are already in motion, and further changes to pension tax relief or wealth taxes remain on the table if the economic outlook worsens.
For SME owners, this period of uncertainty presents a critical opportunity to review tax and succession strategies—especially around asset sales, business transfers, and retirement planning. Acting ahead of the 30 October Budget announcement could help mitigate exposure to any forthcoming changes.
Key Tax Updates: Business Relief and Inheritance Tax Changes from April 2025
Several important tax changes came into effect from 6 April 2025, impacting both business owners and individuals with international ties. These changes, announced in the Autumn Budget 2024, carry significant implications for capital gains and inheritance tax planning over the coming years.
Increase in Business Asset Disposal Relief (BADR)
From 6 April 2025, the rate of Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) has increased from 10% to 14%. This relief offers a reduced rate of Capital Gains Tax (CGT) on qualifying business disposals and is particularly valuable for owner-managed businesses and entrepreneurs exiting or restructuring their businesses.
Looking ahead, the government has confirmed a further increase to 18% from April 2026. While still lower than standard CGT rates, this staged increase reduces the relative tax advantage of claiming BADR. Therefore, individuals planning to dispose of qualifying business assets before 5 April 2026 may wish to consider accelerating transactions to benefit from the current 14% rate.
Major Changes to Inheritance Tax for Long-Term UK Residents
Also effective from 6 April 2025, the government has replaced the previous 'domicile' and 'deemed domicile' concepts with new rules based on long-term UK residence. Under these rules, individuals who have been UK residents for a defined number of years may now find that their non-UK (overseas) assets fall within the scope of UK Inheritance Tax (IHT), particularly in cases of lifetime transfers or on death.
These changes mark a fundamental shift in how cross-border wealth is taxed. Individuals who have historically relied on offshore structuring or assumed protection under domicile rules should urgently review their estate and succession planning strategies.
Key considerations include:
- How and where assets are held (e.g., personal name vs. trust or corporate structures)
- Timing and structuring of asset transfers or disposals
- Liquidity planning for potential IHT liabilities
- Impact on existing Wills, family trusts, or cross-border estate plans
- Mobility and residency intentions in the short to medium term
What Should Clients and Advisers Do Next?
Both sets of changes reinforce the need for proactive tax planning. Business owners considering an exit or restructuring event should model CGT scenarios under the revised BADR rates, while globally mobile individuals—particularly non-domiciled UK residents—should seek specialist advice on how the IHT reforms may affect their estate and family wealth.
Government Plans Overhaul of R&D Tax Credits
The UK’s R&D tax credit scheme is set for a major overhaul as the government seeks to crack down on fraud and improve accessibility for businesses.
A key proposal is the introduction of mandatory assurances, requiring businesses to confirm that their projects qualify for taxpayer support before filing claims. Currently, only a small number of companies use the voluntary advance assurance option, raising concerns about the misuse of the scheme.
The R&D tax credit scheme, which costs the UK around £8 billion annually, is designed to support innovation in science and technology. However, a 2022 investigation uncovered widespread abuse, with advisers encouraging dubious claims and HMRC struggling to verify them effectively.
The proposed reforms aim to tighten oversight while ensuring that genuine innovators can still benefit from the incentives without excessive bureaucracy. These changes are expected to increase efficiency and reduce fraud, ensuring that the support reaches those who truly need it.
How Can Qubic Help?
To navigate these potential changes, Qubic offers tailored tax planning services. Our expertise can help mitigate the impact of higher taxes and leverage current reliefs effectively. The window of opportunity to capitalise on existing tax rates and reliefs is narrowing, making now the time to act.
We understand that uncertainty surrounding tax changes can be challenging, and we are here to help you.
For more information on our tax planning services and to discuss your options with one of our team, simply click the link below:
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