Capital gains tax, levied on profits from selling assets such as shares, properties, and businesses, currently stands at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, with an even higher 32% rate applying to carried interest earnings for fund managers. These rates represent a significant increase since 2024, when the previous chancellor chose to expand wealth taxation. The tax take from capital gains rose 89% in 2024-25 following these adjustments and other modifications including reductions to the tax-free personal allowance.
Multiple organizations and political figures across the Labour party have advocated for further increases, arguing that the current disparity between capital gains rates and income tax rates—which stands at 20%—is inequitable. Supporters contend that lower taxation on asset gains compared to earned income creates unfair incentives and distorts behavior, encouraging individuals to hold assets within businesses rather than deploying them productively. Advocates including the Institute for Fiscal Studies, Institute for Public Policy Research, Resolution Foundation, and TUC have called for rates to be brought closer to income tax levels.
Opponents warn that further increases could discourage investment and economic growth, with business groups noting that UK capital gains taxes already exceed the OECD average of 20%. Concerns have also been raised that higher rates might prompt wealthy individuals to relocate, while some might exploit tax avoidance strategies that could undermine the revenue-raising effectiveness of any increase.
Reformers have proposed comprehensive changes alongside rate increases, including adjustments to what gains are taxable, an investment allowance to encourage productive investment, and an exit tax for individuals relocating abroad. The previous chancellor opted for simpler rate increases rather than such broader reforms in 2024. The current chancellor faces choices between pursuing similar incremental adjustments or implementing more substantial restructuring, alongside considering alternative revenue sources such as windfall taxes or property-related levies.
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