Capital gains tax, which applies to profits realized when assets such as shares, businesses, or properties are sold, currently stands at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. These rates represent significant increases since Labour took office in 2024, with the basic rate previously at 10%. Data from Her Majesty’s Revenue and Customs indicated that CGT collections rose 89% in 2024-25 following these changes.
Various think tanks and politicians across the left have advocated for further increases to CGT, arguing that taxing investment gains at lower rates than earned income creates unfairness. The Institute for Fiscal Studies and other organizations including the Institute for Public Policy Research, Resolution Foundation, and Trades Union Congress have suggested aligning CGT rates with income tax rates, which currently stand at 20%. Proponents contend that such alignment would discourage unproductive capital accumulation and redirect the tax burden away from work-related income.
Business groups have raised concerns about potential negative consequences of higher CGT rates. The British Chamber of Commerce warned that increased rates could discourage productive investment needed for economic growth and noted that the UK’s current CGT rates already exceed the OECD average of 20%. There are also concerns that wealthy individuals might relocate to other jurisdictions to avoid higher tax burdens, and that some may employ tax avoidance strategies to minimize their obligations.
Expert opinion suggests that simply raising CGT rates without broader tax base reforms could prove ineffective at generating expected revenues. Academics have proposed comprehensive reform packages that would include mechanisms such as exit taxes on departing high-net-worth individuals, removal of exemptions for inherited assets, and investment allowances to encourage productive economic activity. Previous versions of such reforms were recommended by the Institute for Fiscal Studies in 2011, though the previous chancellor opted for straightforward rate increases instead.
The chancellor has multiple tax-raising options under consideration as the budget approaches next month, including potential adjustments to other taxes and levies. However, the administration has committed to leaving income tax, national insurance, and VAT unchanged, constraining the available options for raising additional revenue to meet the government’s fiscal rules.
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