With Britain bracing for what looms as a punishing October budget, speculation centers on capital gains tax, a levy already reshaped twice since Labour took power and now generating record receipts for the Treasury.
Chancellor John Healey faces a brutal fiscal landscape marked by surging energy costs and bond market jitters. Meanwhile, pressure mounts from within his own party to treat CGT as the most viable wealth tax available, one that sidesteps the political minefield of creating an entirely new levy from scratch.
The mechanics remain straightforward. Sell shares, a business, or a buy-to-let property and the government taxes any profit above what you originally paid. Losses elsewhere and certain investment costs reduce the bill. Current rates stand at 18% for basic-rate taxpayers, rising to 24% for higher earners. Fund managers earning via carried interest pay 32%.
Those figures represent a dramatic climb from pre-2024 levels, when the basic rate sat at just 10%. Revenue jumped 89% in 2024-25, according to HMRC, driven by rate increases and a shrinking tax-free allowance inherited from the Conservatives.
Advocates for another hike span the Labour spectrum. Wes Streeting, long considered a party moderate, branded CGT “the wealth tax that works” during his leadership bid. Louise Haigh, now first secretary in Andy Burnham’s cabinet, previously argued rates should align more closely with income tax, which starts at 20%. Backing also comes from the IFS, Resolution Foundation, IPPR, CenTax, and the TUC.
Their core argument: taxing investment gains below wages punishes work while rewarding passive accumulation. The IFS adds a behavioral critique, noting current rules encourage business owners to hoard assets rather than deploy them productively.
Business groups counter that the UK already exceeds the OECD average CGT rate. Lena Levy of the British Chamber of Commerce warned speculation alone creates “huge uncertainty” for anyone considering investment or exit. Wealth flight and tax avoidance present further risks.
Reformers say those pitfalls vanish with proper design. Prof Arun Advani of CenTax urges pairing any rate rise with structural fixes: an exit tax on departing millionaires, ending the inheritance exemption, and an investment allowance shielding gains that merely track general asset inflation. Versions of these proposals date back to the IFS Mirrlees review in 2011. Reeves chose the simpler path of rate-only increases in 2024; Healey could follow suit or wait for comprehensive reform next spring.
His alternatives remain limited. Income tax, national insurance, and VAT are off the table under Labour’s manifesto pledge, despite income tax raising £330bn compared with CGT’s £22bn. A bank windfall tax or expanding the upcoming mansion tax offer other routes.
Whether new revenue is needed at all depends on the OBR’s verdict on Labour’s fiscal rules. Treasury insiders suggest a narrowly focused budget addressing fiscal devolution, with defence spending decisions deferred. But a grim forecast, or pressure to shield consumers from energy bills, could force CGT back into play on 28 October.
