Chancellor weighs further capital gains tax rise for budget
Capital gains tax is being considered as a revenue option for the chancellor's upcoming budget, building on significant rate increases since Labour came to power in 2024. The basic rate has risen from 10% to 18%, with higher-rate taxpayers now paying 24%, and revenue from CGT increased by 89% in 2024-25. There is substantial debate about whether to raise the rates further, with prominent support from across the Labour party and major thinktanks arguing that investment gains should be taxed more like earned income.
Current CGT rates are 18% for basic-rate taxpayers, 24% for higher-rate taxpayers, and 32% for carried interest in fund management. The UK's rates already exceed the OECD average of 20%. Supporters of equalising CGT with income tax rates (20% basic rate) include the Institute for Public Policy Research, the Centre for the Analysis of Taxation, the Resolution Foundation, and the TUC. However, business groups warn that further increases could discourage productive investment, drive capital flight, and increase tax avoidance, and some experts argue any rate rise must be accompanied by reforms to the tax base itself to be effective.
- CGT revenue up 89% since 2024; further increases under consideration for budget
- Labour and thinktanks favour raising rates closer to income tax levels
- Business warns higher rates risk investment decline and capital flight abroad
Both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Investment gains should face similar tax treatment to earned income as a matter of horizontal equity—two people earning identical amounts should pay equivalent tax regardless of whether income derives from work or capital. The 89 per cent revenue increase from the previous rises demonstrates that the tax base has proven resilient, and think tanks across the policy spectrum, including the IPPR and Resolution Foundation, support bringing CGT rates closer to income tax levels. This addresses a fundamental fairness concern: why should returns on capital be privileged over returns on labour?
The case against
Capital gains taxes present economic challenges distinct from income taxes, since higher rates discourage future investment by reducing after-tax returns, whereas earned income taxation cannot deter work already completed. The UK already exceeds the OECD average CGT rate, risking capital flight to lower-tax jurisdictions and reducing productive investment in the economy. The previous revenue increase may reflect a temporary realization effect as taxpayers accelerated gains, and sustainable revenue collection requires not just rate rises but fundamental base reforms to prevent avoidance and distortion.
Read the full article at the source →
Originally published by The Guardian as “Capital gains tax: how it works, benefits and pitfalls of another hike”.