Wes Streeting’s proposal to align capital gains tax with income tax bands could cost the Treasury billions of pounds rather than raising additional revenue, new analysis suggests.
Streeting, reportedly in the running to succeed Rachel Reeves as Chancellor should Andy Burnham enter No 10, last month proposed lifting capital gains tax to match income tax bands, up from its current level of 24 per cent.
The former health secretary argued the move could raise billions for the public purse, but investment platform IG has challenged that assumption directly.
Analysis from IG, using HMRC figures, puts the potential cost to the Treasury at £7.8bn, driven primarily by investors choosing not to sell assets to avoid a larger tax bill.
Capital gains tax is only triggered when an asset is disposed of, meaning higher rates would reduce the number of taxable transactions and ultimately suppress overall tax receipts.
Basic rate taxpayers would see their CGT rate rise from 18 per cent to 20 per cent under Streeting’s proposals, a relatively modest increase that IG estimates could raise as little as £10m.
Higher rate taxpayers face a far steeper increase, with their CGT rate jumping from 24 per cent to 40 per cent, a 16 percentage point rise that could cause many investors to halt asset sales entirely.
IG estimates this group alone could cause the Treasury to lose approximately £3.2bn as investors delay or avoid disposals altogether to protect their returns.
Additional rate taxpayers would face an even sharper impact, with their rate climbing from 24 per cent to 45 per cent, potentially costing the Treasury a further £4.6bn according to IG’s modelling.
“At a time when we need more people investing and building long-term financial resilience, making investment gains significantly more heavily taxed risks discouraging participation,” said Michael Healy, Managing Director of UK and Ireland at IG.
“Aligning capital gains tax with income tax rates would not only make investing less attractive but would also prove fiscally counterproductive, costing the Treasury billions of pounds,” Healy added.
The proposals also risk undermining the government’s broader ambition to grow retail investing activity across the UK and strengthen the domestic economy.
Hiking taxes on the sale of stock could leave investors with less liquidity, weakening the incentive to participate in financial markets and potentially eroding the UK’s competitive position further.
IG also warned that investors could simply sit on existing holdings to avoid paying higher taxes, trapping capital that might otherwise be recycled back into the broader economy.