As Chancellor John Healey prepares for next month’s budget, speculation continues to mount regarding whether capital gains tax (CGT) will serve as a primary vehicle for raising government revenue. The tax applies to the profit earned when selling assets, such as shares, businesses, or buy-to-let properties, after accounting for deductible investment costs or losses. And the costs of investing in improving a property, it’s not quite that simple: you can reduce your CGT bill by deducting losses made on other investments.
Currently, CGT rates sit at 18% for basic-rate taxpayers and 24% for those at higher rates. A specific, controversial category known as “carried interest”—where City fund managers collect earnings as a share of profits—is taxed at a higher rate of 32%. These figures reflect significant increases since Labour took office in 2024, when former chancellor Rachel Reeves moved to tax wealth more aggressively, up from a previous basic rate of 10%. Recent HMRC data indicates these adjustments, alongside cuts to tax-free personal allowances initiated by the previous Conservative government, resulted in an 89% surge in CGT receipts for the 2024-25 period.
Proponents of further reform, including politicians from across the left and various thinktanks, argue that current systems unfairly favor asset gains over salary-based income, which is taxed at 20% for basic earners. Wes Streeting famously described CGT as “the wealth tax that works,” highlighting its utility compared to the complexity of creating new tax structures. Similar sentiments have been shared by senior figures such as the first secretary, Louise Haigh, who advocated for aligning CGT with income tax rates to shift the burden away from work and discourage unproductive capital accumulation. And what are the pros and cons of raising it further, how does it work. Back in May, when Wes Streeting had his eye on the Labour leadership, he called CGT “the wealth tax that works ” – in contrast with the prospect of setting up an entirely new tax. His backing for higher rates of the key tax underlined how widespread the view is within the party, given Streeting’s position towards the right of the Labour party. The first secretary, Louise Haigh, argued in an article in the journal Renewal, before she took on her powerful role in Andy Burnham’s cabinet, that CGT rates should be “brought closer to income tax rates”.
The push for equality has received support from the Institute for Public Policy Research, the TUC, the Resolution Foundation, and CenTax at Warwick University. However, business groups warn that further hikes could damage the UK’s economic growth prospects. Lena Levy of the British Chamber of Commerce noted that speculation creates uncertainty for investors, pointing out that UK rates are already higher than the 20% OECD average. Critics also suggest that high-net-worth individuals might leave the country or engage in tax avoidance strategies to circumvent further increases. Another argument – advanced by the Institute for Fiscal Studies (IFS) – is that it distorts behaviour: incentivising people to hold on to assets inside a business, for example. The prospect of another rise – along with a slew of other tax reforms since 2024 – is also cited as one reason that high net worth individuals might choose to leave the UK.
Experts like Prof Arun Advani of CenTax suggest that merely raising rates is insufficient without reforming the underlying tax base. Proposed solutions include an “exit tax” for those moving assets abroad, removing inheritance tax exemptions on assets, and implementing an “investment allowance” to ensure CGT only applies to gains exceeding general asset inflation.
Chancellor Healey faces a narrow fiscal window. While income tax, national insurance, and VAT generate significantly more revenue—income tax alone is projected to bring in £330bn this year compared to £22bn from CGT—Prime Minister Andy Burnham has pledged to protect these major tax streams. Consequently, officials are considering alternatives like bank windfall taxes or adjustments to the anticipated “mansion tax.”
Budget decisions will ultimately depend on the Office for Budget Responsibility’s outlook regarding Labour’s fiscal rules and the impact of fluctuating energy prices on borrowing costs. While current Treasury signals suggest a budget focused on fiscal devolution with long-term projects like the 3% GDP defence target deferred to 2027, a bleak economic forecast or the need to shield households from rising energy bills could force a more radical approach on 28 October.
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