Government warns against capital gains tax increases ahead of Budget
Andy Burnham and John Healey have been cautioned that any attempt to increase capital gains tax during the Budget will likely be met with resistance, reports BritPanorama.
The government recorded a tax take of £198 million in August from capital gains tax (CGT), an increase of £8 million compared to the same period last year.
Speculation surrounds next month’s budget, which may propose raising CGT to bolster Treasury revenues. However, experts warn that straightforward increases may not translate to higher actual revenues.
Historically, CGT is a volatile income stream for the government due to its nature and the propensity for taxpayers to adjust their behavior. It is only payable when assets yielding profit—such as property, shares, and cryptocurrency—are sold. Individuals benefit from a £3,000 personal allowance, above which CGT rates of 18% or 24% apply based on specific circumstances.
As rumors of potential rate increases circulate, experts emphasize that such changes could backfire. Investors might hold onto their assets longer in anticipation of a more favorable tax climate, ultimately reducing the expected revenue from CGT.
Rachael Griffin, tax expert at Quilter, highlights this dynamic, stating, “One of the more persistent Budget rumours is that the government could seek to align Capital Gains Tax rates more closely with income tax rates. On paper, such a move could significantly increase the amount of tax due on investment gains and potentially deliver a sizeable boost to Treasury revenues.”
However, she acknowledges the unpredictable nature of CGT, which is learning-sensitive. “Faced with higher rates, some may accelerate disposals ahead of any changes while others may simply hold assets for longer or alter their investment behaviour altogether,” Griffin adds.
Sarah Coles from AJ Bell notes a trend of taxpayer behavior aligning with these concerns. “It’s a useful demonstration of the fact that when it comes to CGT, tightening the screw doesn’t necessarily generate more tax, because people will change their behaviour – they’ll sell up ahead of changes, and then hoard assets for as long as possible afterwards to avoid a hefty tax bill,” Coles explains.
The consideration of CGT as a funding source stems from a potential reduction in the personal income allowance. Susannah Streeter, chief investment strategist at Wealth Club, states, “If the government is looking to put more money into people’s pockets by reducing their income tax bill, it would need to find the money elsewhere, and CGT is increasingly being talked up as a potential source.”
Furthermore, various investment vehicles allow individuals to defer tax liabilities, complicating the government’s reliance on CGT for revenue generation. As the debate continues, it remains clear that changes to CGT could provoke significant taxpayer responses that may ultimately counter any intended fiscal gains.
