Capital Gains Tax Hikes Under Consideration as Treasury Scrambles for Funds

The UK Treasury is contemplating significant increases to the capital gains tax (CGT) rates, with figures ranging from 33% to 39% presently under examination, according to a report by The Guardian. This consideration is part of a broader effort to address financial shortages affecting public services. The current CGT is applied to the sale of assets, such as second homes and shares, but at rates considerably lower than those applied to income.

Rachel Reeves, the Chancellor of the Exchequer, is reviewing Treasury models that explore various scenarios for potential CGT hikes. This move comes as the government faces limited tax-raising options to fill a budgetary gap highlighted by the Institute for Fiscal Studies (IFS). Whitehall sources express growing unease, with some describing tax plans as being in “complete disarray.”

The Treasury has faced obstacles with other wealth tax initiatives, including targeting non-domiciled individuals and private equity managers. Officials warn that such measures might not generate the expected revenue, with concerns that wealthy individuals could relocate abroad to avoid heavier taxation.

A Treasury spokesperson has rebutted claims of disarray, dismissing the speculation as inaccurate and acknowledging that specific tax measures would not be confirmed ahead of the budget announcement on October 30th. The government has tasked the Office for Budget Responsibility (OBR) with assessing potential revenue from CGT within the proposed range.

The proposed hikes in CGT have elicited mixed responses, with approximately 350,000 taxpayers contributing about £15 billion annually under the current system. While raising rates to the lower end of the proposed spectrum might capture additional hundreds of millions for the exchequer, increasing CGT to 39% could lead to a decrease in tax receipts over time due to taxpayer avoidance strategies.

Current rates for capital gains include a 24% tax on profits from non-principal residential properties, 18% to 28% on carried interest from managed investment funds, and 20% on other asset gains. With speculation about tax increases, some investors have rushed to sell assets preemptively, inducing a potential temporary spike in tax revenue.

Labour Party leader Keir Starmer and Reeves have publicly committed to not raising income tax or national insurance for most taxpayers, leaving CGT as a possible target for raising funds. The Treasury is under significant pressure to find solutions before the upcoming budget presentation.