Wes Streeting has already announced his CGT plans if he takes over as PM (Image: Getty)
As Labour leadership candidates search for new taxes to hike if they replace Sir Keir Starmer as PM, capital gains tax is high on the list.
Last week it was the turn of former Labour cabinet minister Wes Streeting, who suggested increasing capital gains tax (CGT) bands in line with income tax.
This has been a popular proposal among left-wing think tanks for years, and would mark yet another Labour assault on wealth.
Yet it was Tory chancellor Jeremy Hunt who first took the knife to CGT allowances, slashing the annual exempt amount from £12,300 to just £3,000. Rachel Reeves went a step further in her maiden Budget in October 2024, by hiking the lower rate of CGT from 10% to 18%, and the higher rate from 20% to 24%.
Streeting’s suggestion would see those bands increased to 20% and 40% respectively, with a third additional band of 45%.
So what’s the impact of CGT hikes done so far, and what would a further assault mean for savers and investors?
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Jason Hollands, managing director at wealth management firm Evelyn Partners, said Britons paid a staggering 62% more in CGT in the last financial year than in the previous one, handing £22.2billion to the Treasury.
Inheritance tax is more controversial than CGT, but total IHT receipts were actually much lower at just under £8.5billion
Hollands pinned the CGT surge on investors rushing to sell assets before Reeves delivered her 2024 Budget, as they anticipated a Labour tax raid. At the time, many expected her to align CGT rates with income tax.
That could still happen. “Another summer of speculation about tax rises in the autumn Budget now looks inevitable. A further CGT hike cannot be ruled out,” Hollands said.
Shrinking CGT allowances and rising tax bands are squeezing investors from both sides when selling non-ISA shares and investment funds, second properties, crypto-currencies, businesses, antiques and other assets.
Sarah Coles, head of personal finance at AJ Bell, said as the taxman tucks into our wealth, savers must make full use of CGT-free tax shelters such as ISAs and pensions.
She said many investors are already changing their habits. “Some will be hoarding assets until they die, so they never have to pay CGT. Others will be realising gains gradually, using their annual £3,000 exemption.”
Rachael Griffin, financial planning expert at wealth manager Quilter, warned that equalising CGT rates at up to 45% would markedly increase the cost of selling assets such as shares and second homes. “The incentive to realise gains weakens massively,” Griffin warned.
Many could adopt a “hold until death” strategy, keeping assets for life so beneficiaries inherit them free of CGT (although they may pay IHT). Rachel said: “Higher rates change behaviour. Investors may hold assets for longer, defer rebalancing decisions or rely more on tax wrappers.”
Pensioners who rely on selling investments to raise cash or supplement their retirement income may have to factor in much higher CGT bills.
Griffin warned that the CGT grab may ultimately backfire. “In the housing market this could limit supply and reduce mobility, as second home owners and landlords refuse to sell.”
There is also a serious danger that people will not bother to invest at all, or think twice about setting up businesses, knowing that the ultimate beneficiary will be HMRC.