As Chancellor Rachel Reeves grapples with a £22 billion shortfall in public finances for the 2024-25 fiscal year, speculation is mounting that she may turn to capital gains tax (CGT) to bridge the gap. With limited options available due to Labour’s manifesto commitments, Reeves has refused to rule out raising CGT, which has sparked concern among Britain’s wealthiest individuals.
CGT currently stands at a typical rate of 20%, making it an attractive target for tax hikes. The Institute for Fiscal Studies (IFS) suggests that equalising CGT with income tax rates—where higher earners pay 40% or 45%—could be a plausible move for the Chancellor. However, such a drastic increase has left many wealthy individuals considering their options. Wealth advisers report a surge in calls from clients who are concerned about the potential tax grab. Some are even taking drastic measures, such as leaving the UK to trigger CGT at the current 20% rate, believing that the country has become hostile toward wealth creators. Others are accelerating business sales or seeking complex ways to pay taxes on gains while retaining their assets.
While proponents argue that aligning CGT with income tax rates would promote fairness, critics warn that such a move could discourage investment, risk-taking, and entrepreneurship. The IFS suggests that reforming the system—such as removing certain reliefs and indexing gains to inflation—could be a more effective approach.
As Reeves prepares to announce her tax plans in October, the pressure is on to strike the right balance between raising much-needed funds and maintaining a favorable environment for investment and growth. With the country facing a low investment, low growth trap, experts caution against increasing capital taxes, arguing that it could further hinder productivity and wage growth. The Chancellor’s decision on CGT will have far-reaching implications for the UK economy and its ability to attract and retain successful entrepreneurs. As the October fiscal event approaches, all eyes will be on Reeves to see how she navigates this delicate balancing act.
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