Bringing Capital Gains Tax in line with Income Tax would result in a yearly loss to the Treasury of billions of pounds
Bringing Capital Gains Tax (CGT) in line with Income Tax, as suggested by some Labour politicians, would result in a yearly loss to the Treasury of billions of pounds, say leading audit, tax and business advisory firm, Blick Rothenberg.
Robert Salter, a director at the firm, said: “Secretary of State for Defence, Wes Streeting and former Labour party leader, Lord Kinnock, have both called for the alignment of CGT and Income Tax. However, rather than a ‘wealth tax that works’ as suggested by Mr Streeting, it may result in billions of pounds of losses to the Treasury.”
He added: “Based on HMRC’s Direct effects of illustrative tax changes bulletin June 2025, putting the higher rate of CGT to 34%, to bring it closer to the 45% Additional Rate of income tax, would result in a drop in CGT receipts of £540m in the 26/27 tax year, £2.06bn in the 27/28 tax year and 3.5bn in the 28/29 tax year.”
Robert said: “If the lower rate of CGT, which is 18%, was put up to 19%, almost in line with Basic Rate income tax at 20%, it would at first, result in a drop of £5m, then a gain of £5m in the 27/28 tax year, and a gain of £10m in the 28/29 tax year – which would only equate to a 0.001% increase to the total tax take.”
He added: “CGT is a very ‘volatile’ tax – people overwhelmingly have flexibility as to when they sell assets and realize CGT gains and hence become liable to pay it. According to HMRC, most of the CGT take comes from a small number of taxpayers who make the largest gains. In the 2023 to 2024 tax year, 40% of CGT came from taxpayers who made gains of £5 million or more – less than 1% of the total percentage of people who were liable to CGT in the 2023/24 tax year.”
Robert said: “These taxpayers are likely to be the most mobile individuals and can easily move overseas and simply avoid the CGT liability in many cases, if, for example, they remain UK non-resident for a period of 5+ years. Although certain assets, such as UK real estate, would still be liable to CGT even if someone is fully non-resident, capital gains from other sources usually fall outside the UK CGT net, once someone breaks UK residence on a long-term basis.”
He added: “A lot of CGT comes from real entrepreneurial investments such as from creating a new business. Increasing the CGT payable on such capital gains could also potentially reduce business investment and increase joblessness at a time when young people in particular are struggling to get on the jobs ladder – as owners might not be willing to take the risk of creating a business, given the increasing lack of reward for that risk.”
Robert said: “However, there is potentially a less problematic way the Government could increase headline CGT rates – if it wished to do this as a point of principle – and that is by linking them to ‘inflationary protection’ – so that the tax is only due on economic gains rather than purely inflationary ones. The UK previously had CGT rates with inflationary protection that was equal to income tax rates under Nigel Lawson when he was chancellor in the 1980s.”
He added: “Combining higher CGT with actual inflationary protection would probably result in many regular taxpayers being better off from a net tax cost perspective. This is because they are presently paying CGT on gains which are simply inflationary gains and if there were inflationary protection, they would face no tax liability or a lower liability than under the present system.”
Robert said: “However, the full impact of such a change would need to be carefully considered as the UK and global economy was very different in the 1980s compared to today. Increasing CGT must not be viewed as a quick ‘cash cow’ and instead done with fairness and consideration of the long-term impacts on taxpayer behaviour.”