The UK’s new finance minister, Rachel Reeves, delivered her highly anticipated budget yesterday, revealing plans to raise an additional £40 billion in taxes annually — the largest increase in over 30 years.¹

The budget includes a rise in the capital gains tax rate (CGT) for higher earners, from 20% to 24%, as rates for residential property gains remain at 18% and 24%. 

While this increase will impact investors, it is notably less severe than the previously speculated hike of up to 40%, which would nearly align CGT rates with income tax rates.

Meanwhile, inheritance tax thresholds, which apply a 40% rate to estates over £325,000, will be extended until 2030. Inherited pensions, however, will be brought into inheritance tax from April 2027.²

In private equity, the capital gains tax on carried interest — the performance fees earned by fund managers — will increase from 28% to 32%. 

Reeves indicated that further changes to the carried interest regime are expected from April 2026.

The increase in tax on carried interest is still more moderate than expected. We don’t anticipate a wave of private equity executives leaving the UK as a result, and we hope the new government will maintain its favorable view on the role of private investment.

Balancing act 

With this budget, the government has faced a challenging balancing act: maintaining fiscal discipline amid the UK’s precarious financial situation while also seeking to boost GDP growth through public investment. 

They had to find a combination of increasing revenue with spending cuts that will appease political stakeholders. Many backbenchers are already frustrated with various austerity measures, such as cuts to winter fuel payments, while tax hikes could lead to capital flight and diminished private sector investment. 

Our verdict is that it is the budget of a government with limited space. Relatively low investment figures are disappointing and the growth outlook is still very limited.³

At the end of the day, Labour will be happy that much of the bad news is already in the price and that bond markets remained relatively calm.  

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