Rachel Reeves plan to ‘hike CGT to 39%’ would cost £100million, HMRC’s own figures reveal – as Chancellor is warned tax hike plan will send investors abroad
A huge capital gains tax raid will cost the country billions and send investors abroad, Rachel Reeves has been warned.
The Chancellor is considering hiking the levy, but even the taxman has said a massive increase would cost the Treasury billions.
HMRC estimates that a one percentage point increase in the higher rate of capital gains tax would raise just £100million.
But a 10 percentage point increase or more – as was being mooted yesterday – is predicted to cut revenue by around £2billion because so many investors would quit Britain.
It comes amid reports that Ms Reeves is considering raising CGT as high as 39 per cent in the Budget – claims strongly denied by the Treasury last night.
The Guardian said officials were testing a range of 33 per cent to 39 per cent for CGT – levied on the gain, or profit, when an asset is sold.
But a Treasury spokesman said: ‘This reporting is not based on government modelling – we do not recognise it. This is pure speculation.’
A senior Government source also ruled out raising CGT to 39 per cent or higher.
A huge capital gains tax raid will cost the country billions and send investors abroad, Rachel Reeves (pictured) has been warned
HMRC estimates that a one percentage point increase in the higher rate of capital gains tax would raise just £100million
But Treasury sources said the Chancellor’s tax-raising plans were in ‘complete disarray’, with some ‘very big tax decisions are being left until very late in the day’.
The speculation over CGT comes with just 20 days to go until the Budget, and with a major international investment summit next week, throwing into doubt Labour’s pre-election claims of having a ‘fully costed plan’ for Britain’s future.
Shadow chancellor Jeremy Hunt told the Mail last night: ‘It has only been 100 days, but already Labour’s Budget plans are in total disarray.
‘Before the election they were repeatedly warned that their tax rises could cost money or damage growth, yet they refused to ditch them.
‘Unfortunately as we are already seeing, it’s business confidence and future economic growth that will be a casualty of this chaos.’
Economists at the Institute for Fiscal Studies (IFS) have warned that increasing CGT would incentivise people to leave the UK before realising gains.
The IFS suggested taxing people emigrating from the UK on their accrued but unrealised gains to address the problem.
Capital gains tax is levied on the sale of assets, and it is currently charged at a maximum rate of 20 per cent for shares and 28 per cent for property.
The rates are much lower than taxes on wages, which stand at up to 45 per cent, and there have been calls to bring these in line.
Ms Reeves has previously refused to rule out making changes to CGT to fill the Treasury coffers.
Shadow Chancellor Jeremy Hunt (pictured) attending the Conservative Party Conference at the ICC in Birmingham on September 30
The HMRC estimates were contained in the IFS’s ‘green budget’, published yesterday, which analyses the challenges and trade-offs facing the Chancellor ahead of the Budget later this month.
Pointing to HMRC’s ‘ready reckoners’ from June, which show estimates of the effects of illustrative tax changes on tax receipts, the IFS said they showed that ‘small increases in main capital gains tax rates would raise a small amount of revenue, while a larger rate increase would lead to a fall in revenue’.
‘For example, a 1 percentage point increase in the higher rates of capital gains tax in April 2025 is estimated to raise just £100 million in 2027-28 while a 10 percentage point increase is estimated to reduce revenue by around £2 billion.’
However, the IFS said that ‘in the absence of sufficient information as to how these estimates are produced, it is difficult to assess their credibility.’
But they said that the ‘nature and size of behavioural responses’ would hinge ‘critically’ on the exact reform.
The IFS said higher CGT would make the UK ‘a less attractive place for people to live at the time they realised a capital gain’.
‘Higher effective rates of UK CGT would thus increase both the incentive for individuals with accrued but unrealised capital gains to leave the UK and the disincentive for such individuals to come to the UK.’
The IFS said this could be addressed by introducing a ‘deemed disposal on departure’ scheme for CGT purposes, matched by ‘rebasing on arrival’ for new arrivals so people do not realise their gains outside the country.
