UK Treasury rules out equalising capital gains tax with income tax

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UK Treasury rejects CGT equalisation

Highlights

UK Treasury will not equalise capital gains tax (currently 24% for higher-rate taxpayers) with income tax rates of up to 45%, despite Labour support.
Institute for Fiscal Studies warns of a £35 billion gap in the UK government's spending plans, increasing budgetary pressure ahead of the October 28 Budget.
The Treasury is considering capital gains reliefs to incentivise reinvestment in UK businesses, as business leaders and lobby groups warn of capital flight if tax rises are implemented.

Budget planning and tax options

As first reported by the Financial Times, four people close to the matter say the Treasury has no intention of raising capital gains tax to the same level as income tax, despite support for the idea from senior Labour figures.

The Treasury could still pursue a smaller increase in capital gains tax, which is currently set at 24 per cent for higher-rate taxpayers on profits from asset sales, compared with income tax rates of up to 45 per cent. Healey is seeking to raise revenue in the October 28 Budget to help offset pressure from higher interest rates and increased defence spending.

On Sunday, the Institute for Fiscal Studies warned that Healey faces a 35 billion pound gap in the government's spending plans. People close to the discussions also argue that matching the two tax rates could reduce receipts if investors leave the UK or postpone disposals.

Investor reaction and relief proposals

Support for a steep rise in capital gains tax has come from figures including Louise Haigh, Lord Neil Kinnock and Defence Secretary Wes Streeting, while Labour donor Dale Vince has backed estimates that the measure could raise 14 billion pounds for the Treasury. The IPPR has also supported the approach, calling it a straightforward way to increase revenue.

Those interventions have unsettled entrepreneurs, technology founders and tax advisers. At recent meetings, business leaders warn ministers that more wealthy individuals may leave Britain if capital gains tax rises significantly, according to people familiar with the discussions.

The Treasury is now working on capital gains relief proposals aimed at encouraging entrepreneurs who sell their businesses to reinvest in the UK. Lobby groups including Tech Nation, Startup Coalition and Enterprise Britain are calling for tax obligations to be reduced or deferred when proceeds are reinvested in British start-ups and scale-ups within a set period.

City executives, including the chief executive of Hargreaves Lansdown, have urged the government not to increase capital gains tax. Lord Jim O'Neill has also warned that a rise would reinforce perceptions that wealthy residents are considering moving abroad.

Our earlier coverage of the IMF’s latest fiscal projections highlighted how higher borrowing needs and rising debt-servicing costs are pushing advanced economies toward their largest budget deficits since the pandemic period. We also noted the IMF’s warning that governments need to rebuild fiscal space as elevated debt levels and tighter financial conditions increase pressure on budgets.

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