Plans to increase Capital Gains Tax (CGT) to match income tax rates, reportedly being considered by Andy Burnham's potential administration, could lead to a loss of up to £7.8 billion per year for HM Treasury, according to analysis from investment platform IG.
Louise Haigh, a key ally of Burnham and a potential Chancellor, has stated that CGT levels should be brought closer to income tax rates. Haigh argued that the current disparity, with a maximum CGT rate of 24 percent compared to income tax's 45 percent, incentivizes individuals to shift income into lower-taxed forms.
Wes Streeting, another prominent Labour MP tipped for a significant role in a Burnham government, has also advocated for equalizing CGT with income tax, claiming it would raise £12 billion and improve fairness.
However, IG's analysis suggests the opposite outcome. The report indicates that while basic-rate taxpayers might generate an additional £10 million if CGT rates increased from 18 to 20 percent, this would be outweighed by losses from wealthier individuals delaying or avoiding asset sales. Revenue from higher-rate taxpayers is projected to fall by £3.2 billion, and from additional rate taxpayers by £4.6 billion.
Michael Healy, managing director for the UK and Ireland at IG, stated that the analysis, based on HMRC's assumptions, suggests aligning CGT with income tax rates would make investing less attractive and be fiscally counterproductive. He urged the incoming government to reconsider using the tax lever for investments.