Chancellor John Healey has been warned against increasing Capital Gains Tax (CGT), with another think tank arguing that higher rates could reduce government revenue, discourage investment and weaken the UK’s international tax competitiveness.
The warning comes ahead of the upcoming Budget, amid speculation about potential changes to the tax system. Although Healey is reportedly expected to rule out aligning Capital Gains Tax rates with Income Tax, there are concerns that the Chancellor could still decide to increase the existing CGT rate.
The Centre for Policy Studies (CPS), a right-leaning think tank, has raised concerns about the potential consequences of such a move. Citing HMRC calculations, the organisation estimates that increasing the current higher rate of Capital Gains Tax by 10 percentage points could leave the Treasury £3.6 billion worse off over three years.
According to the CPS, a higher tax rate could encourage investors and other asset owners to delay selling their properties or investments. As a result, the Government could collect less revenue than expected, despite initially anticipating that an increase would generate additional funds.
Higher Capital Gains Tax Could Cost the Treasury
One of the main arguments against raising CGT is that higher rates do not necessarily translate into increased tax receipts. The CPS suggests that some taxpayers may respond to an increase by holding on to their assets rather than selling them and triggering a tax liability.
This could be particularly significant because a relatively small number of taxpayers account for a substantial proportion of Capital Gains Tax receipts. If these individuals become less willing to sell their assets following a tax increase, the Government could see a decline in the transactions that generate revenue.
The potential impact is particularly relevant to property owners and investors who may face a larger tax bill when disposing of assets that have increased in value.
The CPS believes the Government should consider these behavioural responses before introducing further tax increases. While higher rates may appear to offer a straightforward way to raise funds, the organisation argues that the outcome could be counterproductive if taxpayers change their investment decisions.
Its warning also comes amid wider concerns about the UK’s ability to attract investment and support economic growth through its tax system.
UK Tax Competitiveness Under Pressure
The CPS has highlighted the UK’s position in the 2026 International Tax Competitiveness Index, which ranks the country 30th out of 38 OECD nations.
The index assesses how competitive countries’ tax systems are, making the UK’s ranking a concern for those who believe the tax framework should encourage investment, business activity and economic development.
According to the think tank, introducing a separate wealth tax could push the UK down to 35th place in the overall rankings. It also warned that such a move would leave the UK with the least competitive property tax regime among OECD countries.
The CPS argues that further changes to the tax system could make the UK a less attractive destination for investors, particularly if the measures increase the cost of holding or disposing of assets.
For property investors, potential changes to Capital Gains Tax and the introduction of a wealth tax could influence decisions about when to sell, whether to retain existing assets and where to direct future investment.
Proposed 45% CGT Rate Raises Concerns
The think tank has also warned about the potential consequences of increasing the higher rate of Capital Gains Tax from its current 24% to 45%.
According to the CPS, such an increase could cause the UK’s overall tax competitiveness ranking to fall from 30th to 32nd place. It also maintains that the change could reduce rather than increase Treasury revenue.
A 45% CGT rate would make the UK’s rate the highest among OECD countries, exceeding Denmark’s rate of 42%.
The concern is that a substantial increase could make selling assets less attractive, potentially reducing the number of transactions subject to the tax. Investors could instead choose to retain assets for longer, limiting the revenue generated by disposals.
The proposal also raises broader questions about the relationship between taxation and investment. While the Government may be looking for ways to increase revenue to support public spending, the CPS argues that higher taxes on gains could have unintended economic consequences.
For landlords and other property investors, any increase in Capital Gains Tax could affect the financial calculations involved in selling an investment property. The potential tax liability is one of several factors that can influence whether an owner decides to sell, hold or reinvest.
However, the precise impact would depend on the final measures announced and how taxpayers respond to any changes.
Wealth Tax Could Discourage Investment
Capital Gains Tax is not the only area of concern for the CPS. The organisation has also warned against introducing a separate wealth tax, arguing that such measures could discourage investment and entrepreneurship while raising relatively little revenue.
Only four OECD countries currently operate a comprehensive wealth tax, while three have partial versions in place, according to the think tank.
The CPS points to international experience as evidence that wealth taxes may not always deliver the expected financial benefits. In Spain, for example, a wealth tax reportedly raised revenue equivalent to just 0.21% of gross domestic product.
The organisation argues that wealth taxes can influence how individuals manage their assets and make investment decisions. If taxpayers believe the cost of holding wealth has become too high, they may change their behaviour, potentially affecting investment activity and economic growth.
For the UK, the CPS believes the introduction of a wealth tax could compound existing concerns about tax competitiveness. It warns that the country could become less attractive to investors at a time when economic growth and business confidence remain important policy considerations.
These concerns are particularly relevant to property owners, whose assets may represent a significant proportion of their overall wealth. Any new tax would need to be considered alongside existing liabilities and the costs associated with owning, maintaining and selling property.
Think Tank Criticises Government’s Tax Strategy
A CPS spokesperson criticised the Government’s approach ahead of the Budget, arguing that the Chancellor could prioritise raising additional revenue to support Labour’s spending commitments without giving sufficient consideration to the potential economic consequences.
The spokesperson said the UK already has a tax system that does little to encourage growth and warned that the measures being discussed could cause further damage to the economy and the country’s international standing.
The organisation’s position is that tax policy should take account of how individuals and businesses respond to changes, rather than focusing solely on the immediate revenue a new measure might generate.
From this perspective, increasing Capital Gains Tax or introducing a wealth tax could prove less effective than anticipated if investors postpone transactions, reconsider future investments or alter how they hold their assets.
The Government’s challenge is to balance the need to fund public services and spending commitments with the importance of maintaining a tax system that supports investment and economic activity.
What Could This Mean for Property Investors?
For landlords and property investors, the debate over Capital Gains Tax is an important one, particularly for those considering selling investment properties or restructuring their portfolios.
An increase in CGT could raise the cost of disposing of assets that have appreciated in value. Depending on the final policy, some investors may reconsider the timing of a sale or choose to hold their properties for longer.
However, the CPS’s warning also highlights the possibility that higher rates could reduce the number of taxable transactions and undermine the Government’s revenue expectations.
The prospect of a separate wealth tax adds another layer of uncertainty for investors trying to plan for the future. Until the Chancellor confirms the Budget measures, it remains unclear whether any changes will be introduced or how they would affect individual property owners.
With the Budget approaching, Capital Gains Tax is likely to remain a key issue for investors monitoring the UK’s tax policy. The CPS has urged the Chancellor to consider the potential effects on revenue, investment and international competitiveness before pursuing further increases.
Ultimately, the debate centres on whether higher taxes would deliver the additional revenue the Government needs or risk discouraging the investment and asset sales on which some tax receipts depend.
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