Capital gains tax, which applies to profits from selling assets such as shares, property, and businesses, currently stands at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, with a 32% rate for fund managers using carried interest arrangements. Since Labour took office in 2024, these rates have increased significantly from their previous levels, contributing to an 89% rise in tax revenue during the 2024-25 period.
Advocates for higher capital gains tax rates, including multiple think tanks and politicians across the Labour party, argue that the current system unfairly taxes investment gains at lower rates than employment income, which faces a 20% basic rate. They contend that equalizing capital gains and income tax rates would shift the tax burden away from work toward unproductive capital accumulation and reduce behavioral distortions that encourage holding assets within business structures. Prominent supporters include the Institute for Fiscal Studies, Institute for Public Policy Research, and the Trades Union Congress.
Opponents, primarily business organizations, warn that further increases would discourage productive investment needed for economic growth and note that UK capital gains taxes already exceed the OECD average of 20%. Concerns also exist regarding potential tax avoidance strategies and the possibility that wealthy individuals might relocate to other jurisdictions in response to higher rates.
Reformers propose comprehensive changes alongside rate increases, including an “exit tax” on departing wealthy residents, removal of exemptions for inherited assets, and an “investment allowance” to promote productive investment. These measures were previously recommended in the 2011 Mirrlees review but were not implemented when the previous chancellor opted for simpler rate increases in 2024.
The chancellor faces multiple revenue-raising options beyond capital gains tax, including windfall taxes on banks and adjustments to property tax policies, though major taxes like income tax, national insurance, and VAT are constrained by manifesto commitments. The decision to raise taxes ultimately depends on fiscal rule compliance assessments and recent economic data affecting borrowing costs.
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