Chancellor rejects calls to raise Capital Gains Tax in Budget

Chancellor Signals No Immediate Rise in Capital Gains Tax

Ninoda.com – Chancellor John Healey is preparing to resist pressure from within Labour to increase Capital Gains Tax ahead of next week’s Budget, amid concerns that a sharper tax rise could discourage investment and prompt wealthy individuals to delay sales or move elsewhere.

Capital Gains Tax, commonly known as CGT, applies when someone makes a profit by selling an asset that has risen in value. It can cover shares, investments and second homes, though it does not generally apply to a person’s main residence. The tax is distinct from income tax, which is charged on earnings such as salaries and some forms of business income.

For basic-rate income taxpayers, the current CGT rate is 18%. Higher-rate and additional-rate taxpayers pay 24%. The gap between those rates and income-tax rates has long fuelled debate over whether gains from assets should be taxed more heavily.

Concerns over investment and revenue

Healey’s position reflects warnings that a higher rate may not necessarily produce more money for the Treasury. If investors postpone selling assets, change the timing of transactions or leave the UK, the expected tax receipts could be reduced.

HM Revenue and Customs estimated last year that raising the higher CGT rate by 10 percentage points could cut Treasury revenues by £3.6bn in 2028-29. That assessment underlines a central difficulty for ministers: a rate increase can look attractive on paper, but taxpayer behaviour can alter the final amount collected.

The chancellor has previously framed his economic approach around strengthening business confidence and encouraging people to build successful companies. In a speech last month, he stressed the importance of profit-making and investment to the country’s future prosperity.

I want to see this country as a country of wealth creation. I want our government decisions and policies to raise the levels of confidence, and investment, and profit in British business.

That message has been interpreted as a sign that Healey wants to avoid measures that could be seen as hostile to entrepreneurs, investors and self-employed people. For many business owners, capital gains can arise when they sell a stake in a company they have spent years building. Changes to CGT can therefore affect decisions about when to sell, reinvest or expand.

Labour debate over taxing wealth

Some prominent Labour figures had argued for a tougher approach before Andy Burnham became prime minister in July. Louise Haigh had suggested that capital gains should be brought closer to income-tax rates. Wes Streeting called in May for a “wealth tax that works”, shortly after leaving the government led by former Prime Minister Sir Keir Starmer.

Supporters of equalising the two tax systems argue that income and capital gains should not face substantially different treatment where taxpayers have comparable resources. Critics, however, say that capital gains often involve financial risk, long-term investment and assets that may already have been taxed through other routes.

Healey has already ruled out fully matching CGT to income-tax rates. His apparent decision not to increase CGT at all would go further, at least for this Budget, in limiting changes to the taxation of investment gains.

Former Burnham adviser Lord Jim O’Neill, who is also Goldman Sachs’ chief economist, has warned that a CGT increase would send the wrong message to businesses. The argument is likely to resonate with ministers seeking to combine pressure on public finances with a desire to present the UK as a stable place to invest.

Budget pressure extends beyond CGT

The debate comes as the government considers wider tax decisions. Senior banking executives expect the sector to face higher taxes in the Budget after UK banks recorded strong profits. Trade unions have called for banks to make a greater contribution, arguing that their profitability provides scope for additional taxation.

Any move against banks would raise a separate set of questions for the chancellor. Ministers would need to weigh possible revenue gains against the potential effect on lending, investment and the competitiveness of the financial sector. The Budget is therefore likely to involve a series of trade-offs rather than a single decision on CGT.

On the opposition benches, Conservative leader Kemi Badenoch is expected to urge the government to scale back spending plans and borrow less. She is due to tell the prime minister and chancellor to “live within our means”, while highlighting Conservative proposals for £70bn of cuts, including reductions in welfare spending and overseas development aid.

What the decision could mean

For investors and business owners, keeping CGT unchanged would provide short-term clarity. It would mean that those considering the sale of a company, investment portfolio or additional property would not face an immediate rise in the tax rate on qualifying gains.

For the government, the decision would also signal that its growth strategy is taking priority over calls for a rapid increase in taxes on wealth. That does not remove pressure to find money elsewhere. Spending commitments, borrowing levels and the need to support public services will still shape the chancellor’s choices.

Next week’s Budget will show how Healey intends to balance those competing demands. The emerging approach suggests that, while Labour remains divided over how wealth should be taxed, the chancellor is placing greater weight on maintaining confidence among investors and businesses than on increasing Capital Gains Tax in the immediate term.