Equalise Capital Gains Tax to Boost Growth and Fairness

Right now, those of us who work for a living pay higher effective rates of tax than those who make their money from owning and selling assets. For years we have campaigned to change that, by equalising CGT rates with Income tax and removing loopholes in the system. Last week we delivered a message to the Chancellor (now signed by almost 200,000 of you!) calling for this equalisation, alongside a wider package of progressive tax reforms. Now, reports suggest the government is seriously considering the policy ahead of the Budget.

The 1% club’s 24% tax bracket racket or, why you probably pay a higher tax rate than a Billionaire?

Capital Gains Tax overwhelmingly affects a tiny number of very wealthy people. Less than 1% of UK adults pay CGT most years, only 3% have paid CGT at all in the last decade, and nearly half of all CGT revenue comes from people who make gains of more than £5 million a year. Clearly not your average Joe.

CGT is paid when you sell an asset for more than you bought it for— whether that’s a property portfolio, a Picasso, (most commonly) stocks and shares, or (more recently) a Bitcoin wallet. You only pay CGT on gains above £3,000 a year. Plus there are important exemptions – profits from selling your main home, your car, personal belongings worth under £6000, or assets held in ISAs, are all excluded. That’s why most ordinary people never pay it.

For the ultra-wealthy, it’s a different story. They rarely rely on standard wages. Instead, they own assets that steadily rise in value, and fund their lifestyles by selling small portions of those holdings, or borrowing against them.

If someone has a £1 billion shares portfolio growing at (the decade’s average) of 7% annually, they net £70 million in gains in a year. Yet these gains ‘earned’ from ownership, are taxed at a lower rate than incomes from wages or pensions. The highest CGT rate is 24%, compared with the highest income tax band of 45%. Factor in National Insurance contributions and the disparity becomes even more striking. This injustice plays a major role in creating the upside-down system where many billionaires pay similar, or lower effective tax rates than the average worker. In fact among the top 0.01%, only one in ten pays close to the headline rate of 47%, while a quarter pay 20% or less.

How to give the best for investors but no rewards for hoarders

We need to reform Capital Gains Tax to stop rewarding wealth hoarding and aggressive tax planning, and instead encourage productive investment and wealth creation. Rather than offering blanket tax breaks for asset-based income, we should align CGT with income tax while introducing targeted reliefs for genuine investors. These should include investment allowances, to reward those backing the most risky and innovative companies, and a more generous treatment of losses.

Reform should go beyond rates alone to close unfair loopholes like the so-called “death uplift”, which allows people to avoid paying CGT by hoarding wealth until death and then passing it on, and introducing a settling-up charge, or exit tax, to stop wealthy individuals building fortunes here before relocating abroad to avoid paying tax on the gains. Britain is unusual among major economies in lacking these protections from predatory accumulators. The United States, Canada, Australia, France, Germany, Japan, Norway, and Denmark all have some form of settling up tax.

Critics often claim lower CGT rates are necessary to encourage entrepreneurship and investment. Or that those risking capital should be given tax breaks. But in reality, those benefiting the most from the current system are those with huge £multi-million holdings of assets practically guaranteed to steadily increase in value, not those backing the most innovative (and riskiest) new businesses. And billionaires betting £10 million, that they could lose with very little impact (they’d still have £990m afterall) in a stock market that returns an average of 7% each year, is not taking more personal risk than a person working a zero hour contract. A worker risking injury in a manual labour job stands to lose much more. So why are we giving the billionaires a tax break?

Reforming the system would better target support towards genuine investment and enterprise, increasing productive investment across the economy. That’s why proposals along these lines have attracted support from economists, think tanks and politicians across the political spectrum.

Why has this regressive arrangement survived for so long?

Well, put simply those currently benefiting are very rich, and very good at lobbying to protect their interests. And every serious proposal to reform Capital Gains Tax is met with a barrage of hysterical outrage across the billionaire-owned press: “Investors will flee, tax revenues will collapse and the sky will fall in”. Yet the actual evidence by experts points elsewhere. Updated estimates by CenTax suggests that well-designed CGT reform could raise an additional £19.7 billion a year for the country by 2030, while supporting a more productive economy. That’s more than enough to fund an NHS-style social care system in England.

We shouldn’t forget why we collect taxes in the first place. Investment in infrastructure, public services, and the workforce drives economic growth and creates the conditions businesses need to succeed. If we want Britain to attract investment, we need to make it a country worth investing in: one with strong public services, reliable infrastructure, and thriving communities. That’s probably why a majority of millionaires also support CGT reform, because they know the country needs investment, and that they are the ones in a position to provide it.

The current status quo only benefits a tiny group of short-termist extractors that are happy to milk the country dry to fill their pockets. But they have outsized political and media powers, and they’re fighting hard to preserve their privilege. That’s why when Rachel Reeves increased Capital Gains Tax rates in the 2024 Budget, newspapers were filled with predictions revenues would fall as a result. Instead, capital gains and CGT receipts were up nearly 90%, a record high. While some of that increase may have reflected people bringing forward asset sales (we’ll have to wait and see for the long term effects), it remains an encouraging sign that these concerns are overblown.