It’s being speculated that the Labour Party could increase Capital Gains Taxes as a means of filling the hole in the UK’s public finances.
It’s thought the rates of Income Tax and CGT could be equalised, which could potentially raise the top rate of Capital Gains Tax from 28% to 45%.
Speaking in parliament today, Chancellor Rachel Reeves said “difficult decisions” would be made across welfare, spending and tax when delivering Labour’s first budget on October 30th.
However she recommitted to not raising VAT, National Insurance, or Income Tax – leaving Capital Gains Tax as one of few areas the party could explore.
Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “Capital Gains Tax speculation has intensified. As Rachel Reeves peers into the hole in the public finances and is set to reveal just how deep it goes, rumours are swirling as to whether CGT changes could be used to generate extra cash to help fill it.
“One of the suggestions doing the rounds is that Capital Gains Tax rates could rise to match Income Tax. It was one of the things the Office for Tax Simplification explored in 2020. This would see a shocking hike for UK investors.
“As the OTS highlighted in 2020, in the long term it runs the risk of people hoarding their profits until they die. This would mean, for example, buy-to-let investors refusing to part with properties they don’t really want in an effort to avoid CGT, while first time buyers struggle to get on to the property ladder.”
She added: “The tax system should be encouraging and rewarding long-term investing. This has been absent from the CGT system since taper relief was abolished in April 2008.
“Right now, investors face the double-whammy of a system that taxes investments that are simply keeping pace with inflation and allows for far lower gains to be realised tax-free each year.
“If the rates do end up rising, it would add insult to injury. We’d urge the Chancellor to reintroduce incentives that reward long-term investing.”
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