What even is CGT?
Capital gains tax is charged on the profit when you sell, or otherwise dispose of, something that has gone up in value. The gain is taxed, not the sale price. It covers shares and funds held outside an ISA or pension, second homes and buy-to-let property, a business, digital assets and valuable possessions. Losses incurred on these types of assets can be offset against gains.
Your primary residence, ISAs, pensions, gilts, cars and personal possessions worth up to £6,000 are all exempt. The first £3,000 of gains each year is tax-free. After that, the rate depends on your income, because gains are stacked on top of it. Buy shares for £10,000, sell them for £30,000, and a higher-rate taxpayer pays 24% on £17,000 (the £20,000 gain minus the £3,000 allowance): £4,080. Most of it is paid through self-assessment in the January after the tax year ends, which is why receipts lag around a year behind the decisions that drive them.
So, the key question, if the government's own numbers say a straight rise in CGT loses money, why is it still the frontrunner for the Budget?
Capital gains tax has quietly become the most talked-about lever ahead of John Healey's first Budget on 28 October. Louise Haigh MP, Andy Burnham's lieutenant, has called for CGT to be "brought closer to income tax rates". Wes Streeting has called it "the wealth tax that works". The Telegraph reports that Labour donor Dale Vince has sent No 10 and the Treasury a submission arguing that equalising CGT with income tax would raise £14bn towards lifting the personal allowance to £15,570, and the PM and Chancellor are "understood to be reviewing" it. That is reporting, not policy, and the Treasury's line hasn't moved: decisions on tax are "a matter for the chancellor to set out at fiscal events". But with Burnham having ruled out rises in income tax, National Insurance and VAT, and the fiscal headroom squeezed by 6% long-dated gilt yields, the list of big levers left is short. So before anyone tells you what it would do, here is what a rise could actually look like.
Where we are now
The main rates are 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, up from 10% and 20% in Rachel Reeves's October 2024 Budget. Residential property is taxed at the same 18% and 24%. Business Asset Disposal Relief, the founders' relief, rose to 14% in April 2025 and 18% this April, on a lifetime limit of £1m. The tax-free allowance has been cut from £12,300 to just £3,000. Plus carried interest, the private equity profit share often quoted at 32%, moved into the income tax regime this April, which works out at roughly 34% for a top-rate taxpayer.
The striking thing is how few people pay it. HMRC's latest figures show 584,000 people paid CGT on gains made in 2024-25, roughly one adult in a hundred. A record. To put that into perspective, about 555,000 people live in Wandsworth and Westminster combined. Those with gains over £5m, equating to fewer than 1% of payers, paid 45% of the tax.
Yet the money is anything but small change. The tax owed on 2024-25 gains jumped 89% to a record £24.2bn, swollen by people selling ahead of the October 2024 rise. The OBR expects around £21bn this year, climbing to almost £35bn by 2030-31. Healey himself told the Sunday Times recently that the UK has the lowest CGT of any European G7 nation, echoing the line Reeves used in 2024.
How we got here
CGT has been a political hot potato for decades. In 1988 Nigel Lawson taxed gains at income tax rates, with inflation stripped out through indexation, a point worth remembering because his is the model most of today's reformers are reaching back to. Gordon Brown froze indexation in 1998 and replaced it with taper relief. Alistair Darling swept both away in 2008 for a flat 18%. George Osborne added a 28% higher rate in 2010, then cut the main rates to 10% and 20% in 2016. Reeves pushed them back up to 18% and 24% in 2024. Every Chancellor has had a go. The question is which version Healey reaches for.
The menu
Full alignment with income tax (20/40/45). The headline option, and the one that appears to have the most support among senior Labour figures. It hits higher and additional-rate taxpayers selling shares, property and businesses, and founders hardest of all. The catch is in HMRC's own numbers, which estimate that a 10-point rise in the higher rate would actually reduce revenue, by about £2.1bn in 2027-28 and £3.6bn in 2028-29, and even a 1-point rise would lose around £30m by 2028-29, because people simply stop selling. The IFS doesn't think those estimates are a good long-run guide, but they are the government's own.
A partial rise. Something short of full alignment, say back towards Osborne's 28%. Politically easier, but it runs into the same behavioural maths with a smaller prize.
Ending the uplift on death. At the moment, if you die holding an asset, the gain is wiped out and your heirs inherit it at today's value. The IFS estimates ending this would raise around £2.3bn a year by 2029-30, before behaviour changes. It hits older asset-rich households, landlords and family businesses, and would arguably sit awkwardly alongside IHT unless the two were joined up.
An exit tax. Tax gains built up in the UK when someone leaves. The US, Canada and Australia have broad versions, and France, Germany, Japan, Norway and Denmark narrower ones. The UK has no general exit tax for individuals, only rules that catch people who return within five years. Its target is the wealthy and mobile, and its risk, as tax lawyer Dan Neidle put it on The Times' The Business podcast, is a "fiscal wall" that puts off the people you want to attract in the first place.
Scrapping or squeezing Business Asset Disposal Relief. The IFS estimates abolition would raise about £0.9bn. Founders and small business owners take the hit.
Reform the base, then raise the rate. This is the reformers' package. CenTax's Arun Advani and colleagues propose equalising rates with income tax alongside an investment allowance, so only gains above a normal return are taxed, an end to the uplift on death, an exit tax and better treatment of losses. Their latest estimate, published on 23 September, is that this could raise £19.7bn a year by 2030, after allowing for behaviour. The Times reports tax advisers arguing that any steep rise would need an inflation relief alongside it, while KPMG's Tim Sarson suggests a French-style taper that lowers the rate the longer you hold.
So, the same tax gets two very different answers. Raise the rate alone and the government's own sums say you lose money. Raise it with the base reformed and CenTax says you could raise nearly £20bn.
Yesterday, Dan Neidle's Tax Policy Associates added a sting in the tail: the rumours themselves may already have cannibalised much of the prize. It estimates that around £45bn of gains were rushed through before the October 2024 Budget and taxed at the old 20% rather than 24% later, a cost of £1.4bn to £2.4bn. If the rushes before the 2025 Budget and this one are anything similar, £100bn to £165bn of gains that a reformed CGT could have taxed may already have been taxed at the old rates, leaving reform raising £11bn to £18bn less in its early years. It stresses there is considerable uncertainty in those numbers, but the direction is hard to argue with.
The counterargument
Neidle's diagnosis is the neatest I've heard. CGT is "both too high and too low at the same time". Too high because it taxes inflation: hold an investment for ten years, and a gain that only kept pace with prices can leave you paying tax on money you never really made. Too low because an owner-manager who pays themselves in dividends faces income tax of up to 39.35%, but sells the company and pays 24%, so anyone who can turn income into a gain will do exactly that. His fix is the reformers' one, equalise rates and give an allowance for the normal return.
But his twist is the important bit. In a report published yesterday, titled "Capital gains tax reform was right. Now it's dead", he argues that two Budgets have left investors feeling the system has turned against them, and that mid-Parliament, anyone sitting on a large gain can rationally wait two or three years in the hope that a new government cuts the rate.
Others go further. The Centre for Policy Studies' Daniel Herring concluded in July that "there is no good reason to raise CGT", pointing out that a 45% top rate would be the highest in the OECD. Lena Levy of the British Chambers of Commerce has warned that speculation "is only adding to the huge uncertainty for people looking to invest, grow or sell a business". And as Evan Davis pointed out on BBC Radio 4, a tax paid by so few people, on bills big enough to change behaviour, is exactly the kind of tax where pushing the rate too far backfires.
My read
The case for taxing gains more like income is logical and has a wider base of support than just the left. But a rates-only rise is the version most likely to disappoint, even though it is also the easiest to announce. If Healey wants the money, then reform really has to come with it, which is much harder to explain in a Budget speech. However, if Neidle is right that the rumour mill has already harvested much of the prize, even a well-designed reform may now arrive too late to pay for much.
In 2024 many sold before the Budget to lock in the old rates, and the FT reports a sharp rise in retail investors holding individual gilts, whose gains are CGT exempt. Loss aversion does the rest: the fear of paying more later is often a stronger motivator than the gain itself. Part 2 will look at what that behaviour does to the revenue.
The Comms Read
This is a great example of what happens when one side goes silent. The Treasury has given the Times and the Telegraph word-for-word the same statement: no "routinely commenting on rumour, speculation or proposals". Into that vacuum, everyone else has stepped. Tax Justice UK is running a campaign on "the 1% club's 24% tax bracket racket", which it says has nearly 200,000 signatures. Dale Vince has reframed a wealth tax as a cost-of-living measure. Clever politics, because a tax cut for the lowest earners is a much easier sell than a raid on investors. On the other side, advisers are warning of founders packing their bags.
The Institute for Government warned last month that past pre-Budget speculation "was damaging", and Bloomberg's reporting this week made the same point from the other end, describing the wealthy who remain as hypersensitive to any change in the mood music. In yesterday's report, Neidle argued that the best thing the Chancellor can do for CGT policy is to say there will be no changes for the rest of this Parliament, "and mean it". That is the real lesson here. "No comment" is only a strategy if nobody else is filling the silence, and the only thing that ends speculation is a commitment people believe, which is exactly what repeated rumour has used up.
For Boards and IR/PR teams, the message is to prepare now: know which executives, founders and share-scheme members would be affected under each scenario, and have a draft Q&A script ready for 28 October.
Part 2 later this week: what would it actually do to revenue, markets and the people paying it?
Also interesting...
AI is borrowing its way into the bond market. Apollo's Huw van Steenis told Bloomberg TV last week that hyperscaler bond issuance in European currencies has tripled this year and may quadruple. Bloomberg puts it at around $48bn so far, and he estimates it at about 8% of euro investment-grade issuance and more than 20% in Swiss francs. So far it has been absorbed well, but with consensus pencilling in another ~25% rise in capex next year, he says they need to "dip into every pond", public and private. That matters for UK readers too: more supply of long-dated corporate debt adds pressure on yields at a time when gilts are already testing 6% at the long end. The AI boom is increasingly being paid for with borrowed money, and the bond market is starting to notice.
Time will tell. GLA & DYOR.
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