Capital Gains Tax is an entrepreneur tax, not a landlord tax

With the Autumn Budget due on 28 October, speculation has grown that the Chancellor could raise Capital Gains Tax again, or move its rates closer to those of Income Tax. The debate is usually framed around landlords and wealthy investors. HMRC's own statistics point somewhere else.

Alexander Ogden is a director at Executive Life. In this contributed piece he argues that business owners selling the companies they built, rather than landlords or portfolio investors, generate most of the UK's taxable capital gains, and sets out what a further rise could mean for them. The views are his own.

There is a growing disconnect between the Government's pro-business messaging and what business owners are experiencing on the ground.

Increasing or equalising Capital Gains Tax, alongside higher taxes affecting landlords and entrepreneurs, risks sending the wrong signal to the very people the UK needs to invest, build businesses and create jobs. Entrepreneurs already feel they are being asked to contribute more, whether through tax changes, increased National Insurance costs or the steady accumulation of so-called “stealth taxes”. If the ambition is to create a competitive, low-tax environment in which businesses can thrive, continually increasing the burden on business owners could have the opposite effect, encouraging entrepreneurs and investment to look elsewhere.

Every time a Capital Gains Tax rise is proposed, the political sell is the same: make wealthy investors and landlords pay their fair share. On HMRC's own numbers, however, this is not where the money comes from. The UK government must now look at who is actually generating a taxable capital gain in this country. The picture that continuously emerges is of business owners selling companies, not people offloading buy-to-lets or trimming a share portfolio.

Business owners vs property owners

Entrepreneurs selling a business account for half of CGT revenue in the UK. Property, however, is incorrectly the asset most invoked in this debate. In 2023-24, residential property produced £9.4 billion of gains and £2.2 billion of Capital Gains Tax, against a total CGT take that year of £65.9 billion in gains and £12.1 billion in liability. Property accounts for roughly 18 per cent of what CGT actually raises. The other 82 per cent comes from financial assets: shares, funds, and stakes in businesses.

And within that 82 per cent, it isn't the stock market either, at least not in the way people picture it. HMRC's asset-level data shows financial assets made up 77 per cent of all gains in a typical year, but unlisted shares, for example stakes in private companies and anything not traded on the London Stock Exchange, generated 67 per cent of that financial-asset total, against 33 per cent for listed shares. Run the two ratios together and roughly half of all Capital Gains Tax gains in Britain come from people selling private company stock. The underlying story becomes hard to miss: the single largest source of CGT is entrepreneurs and business owners cashing out, not portfolio investors and not landlords.

Business Asset Disposal Relief

The concentration at the top reinforces this rather than complicating it. Forty per cent of all CGT comes from the fewer than one per cent of taxpayers making gains of £5 million or more in a year. Nearly half of all gains belong to people whose taxable income already sits in the 45 per cent additional-rate band. That is a genuinely small, genuinely wealthy population, but the activity generating their gains is disproportionately a business sale, often the only major liquidity event of their working life, not a rolling portfolio of trades.

Business Asset Disposal Relief exists precisely because policymakers have long accepted that this group is a different case from a portfolio investor. It's also a relief that has been quietly getting less generous, on a schedule that's already run its course. Before October 2024, BADR gave qualifying business sales a rate of 10 per cent against a standard higher rate of 20 per cent, a 10-point discount. It's now 18 per cent against a standard rate of 24 per cent, a six-point discount. The advantage has been cut by 40 per cent in under two years, and the £1 million lifetime cap on how much of a sale qualifies at all hasn't moved since 2020, so it covers a shrinking share of any successful exit as company valuations and gains have grown. None of that required a headline rate change to bite. It has already happened.

Should CGT align with Income Tax?

That makes the proposal to align CGT with Income Tax worth testing against what comparable countries actually charge, rather than an abstract idea of fairness. That would matter less if the UK's current rate were already out of step with the rest of Europe. It isn't. At 24 per cent, the rate that applies once someone selling a company has used up the modest £1 million lifetime relief available to business owners, the UK currently has the second-lowest headline Capital Gains Tax rate among nine major European economies.

Ireland's standard CGT rate is 33 per cent, France's is 31.4 per cent, the Netherlands taxes entrepreneurs with a “substantial interest” at up to 31 per cent and Germany's effective rate on a comparable disposal is around 26 to 28 per cent. Switzerland does not tax private individuals' capital gains on shares at all. All sit below the 40 per cent rate that aligning UK CGT with the higher Income Tax rate would create. The UK would not be catching up with its peers; it would be overtaking them to become the most expensive country in this group in which to sell a business you built, just as its own relief for doing so has already been quietly cut.

In this day and age, business owners and investors repeatedly have to consider whether rates might rise and whether they should accelerate a sale, investment decision or business exit ahead of a Budget.

That uncertainty has a real economic effect even when the threatened tax change never materialises. People become reactive rather than strategic: entrepreneurs bring forward disposals, investors delay commitments and individuals restructure their finances based on what they think the Government might do next. For business owners in particular, constantly shifting expectations around CGT make long-term planning harder. A genuinely pro-business tax environment is not simply about the headline rate; it is also about stability and predictability. Businesses can plan around a tax they understand, but it is much harder to plan around the possibility that the rules could change at every Budget.

Of course, none of this means the case for reforming CGT is baseless, or that every high earner realising a large gain deserves sympathy. But the debate keeps being conducted as though the money sits with landlords and passive wealth.

However, the fact remains that it overwhelmingly sits with the small number of people each year who start a company, build it for years, and eventually sell it. This group represents one that has found it measurably harder to be rewarded in the UK since 2024, and one that a further rate rise could price out of the UK more decisively than any of its major European neighbours price out theirs.

While tax uncertainty, especially in the lead-up to the Autumn Budget, will not easily go away, small businesses need to look to themselves for a shield. By assessing their portfolio, investing in business protection and uncovering the hidden tax efficiencies and savings that can be found by taking a more strategic view, business owners can ensure they are in the strongest position possible, no matter what the next tax storm unveils.