Chancellor John Healey has reportedly ruled out a major increase in Capital Gains Tax (CGT) as he looks for ways to address a projected £35 billion shortfall ahead of the upcoming Budget.
The Chancellor had previously considered aligning CGT rates with income tax bands. Under such a change, some taxpayers could have faced rates of up to 45% on investment profits, compared with the current top CGT rate of 24%.
However, according to the Financial Times, Healey has rejected proposals for such a substantial increase amid concerns that higher taxes on investment gains could make the UK less attractive to investors.
Some sources reportedly described the proposal in strongly critical terms, while others warned that it could encourage wealthy individuals to leave the country, potentially damaging economic growth.
Although the most significant increase appears to have been ruled out, a smaller rise in CGT rates remains a possibility as the Treasury considers its options.
How Capital Gains Tax Works
Capital Gains Tax may apply when someone sells or gives away an asset that has increased in value. Taxable gains can arise from a range of assets, including shares, investments, artwork, antiques and jewellery, although certain exemptions and reliefs apply.
Individuals currently benefit from an annual tax-free allowance of £3,000. Gains above this threshold are generally taxed at 18% when they fall within the taxpayer’s unused basic-rate income tax band, and at 24% on gains above that band.
Aligning CGT with income tax rates could therefore have significantly increased the amount some investors pay when disposing of assets.
Chancellor Faces Pressure Ahead of the Budget
The reported decision comes as Healey prepares for his Budget on 28 October, with the Treasury facing a potential £35 billion gap in the public finances.
The shortfall has fuelled speculation that the Government could introduce tax increases or other measures to raise additional revenue.
While abandoning the proposed sharp rise in CGT would ease one concern for investors, the possibility of more modest increases means tax policy remains an important issue ahead of the Chancellor’s announcement.
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