If you raise a tax that people can choose when to pay, do you get more money, or just more waiting?
The thing that makes CGT different
Most taxes are hard to avoid. You can’t stop earning a salary because income tax goes up and you still need to buy food when VAT rises. CGT is different. You generally pay it when you sell an asset for a gain, which means you tend to have some control over the timing of when that happens. That makes it, in effect, a tax on decisions.
Raise the rate: some people sell early to beat it, some sit tight and wait for it to come down again, while others decide whether to leave the country. All three shrink the bill. That’s why the government’s own numbers in Part 1 showed a straight rate rise raising far less than a simple calculation suggests, and in some cases losing money.
The revenue maths
The best evidence is the last rise. In October 2024, Rachel Reeves lifted the main CGT rates, on most assets other than residential property and carried interest, from 10% and 20% to 18% and 24%. The OBR put the “static” yield from the rate and relief changes, before anyone changed their behaviour, at £5.9bn a year by 2029-30. It then knocked £3.5bn off for behaviour, “reducing the static yield by around 58 per cent”, leaving about £2.5bn. Only around £1bn of that is extra CGT. The rest comes through income tax, because fewer people bother turning income into gains when the gap between the two rates narrows. These are forecasts, not outcomes.
Push the rate further and the estimates get worse. HMRC’s figures suggest a 10-point rise in the higher rate would lead to tax revenues declining by about £2.1bn in 2027-28 and £3.6bn the year after.
IG ran HMRC’s assumptions over full alignment with income tax and reckons it would cost the Treasury around £7.8bn a year. CenTax, by contrast, thinks a reformed package could raise £19.7bn a year by 2030. Those numbers aren’t directly comparable, as they describe different policies. But the gap between them comes down to one question nobody can answer with confidence: how strongly people react.
Response one: sell first
We’ve just watched this one happen. The OBR reckons selling ahead of the October 2024 Budget added around £2bn to that year’s receipts, and Dan Neidle’s Tax Policy Associates estimates around £45bn of gains were rushed through to beat the rise. HMRC reported record CGT liabilities of £24.2bn for 2024-25, up 89%. To be fair, HMRC points to several causes: the rate rise itself, the cuts to the tax-free allowance, the planned rise in Business Asset Disposal Relief, and speculation ahead of the Budget. So not all of it was forestalling.
So while it may have looked like a triumph, a good chunk of the additional take was simply revenue borrowed from future years at the old rate. With CGT speculation surrounding yet another Budget, the incentive to sell early is back.
Response two: sit tight
The opposite reaction is to do nothing. CGT can reward that too. When someone dies, gains on the assets they hold aren’t charged CGT and the heirs inherit the assets at today’s value. Inheritance tax may apply, but the gain itself is wiped clean. The older you are, the more rational it becomes to hold on.
Mid-Parliament, as Neidle points out, anyone sitting on a large gain can simply wait two or three years in the hope that a future government cuts the rate. Economists call this lock-in. In plain English, money stays stuck in old businesses, property and share portfolios for tax reasons rather than moving to wherever it would earn the best return. That’s a cost to growth, not just to the Treasury.
Response three: leave
This is the one that makes the headlines and the evidence needs handling with care.
Leaving to dodge CGT is harder than it sounds. Under the temporary non-residence rules, if you come back within five years, gains realised while you were away can be taxed when you return. Plus, UK property stays within the UK’s CGT net even for non-residents. So it takes a genuine, long-term move.
Some people are making it. Bloomberg calculates that billionaires on its index who have loosened or cut their ties with the UK in the past two years are worth around $160bn, more than those still based here. That’s a measure of their wealth, not of tax lost. This year’s Sunday Times Rich List found one in six of those on the list two years ago no longer appear, although dropping off a list doesn’t always mean someone has emigrated.
Context matters. About half of Bloomberg’s departures left in the weeks before April 2025, when the non-dom rules changed, rather than because of CGT. A Wealth Club survey of 341 of its own clients worth £1m or more found 61% had considered leaving over tax, but only 16% were actively considering it, and only 18% named CGT as their biggest worry, behind inheritance tax and wealth taxes.
As Neidle has argued, someone whose UK tax bill was already small isn’t the same as a UK-based entrepreneur who pays a lot of tax and employs people here. The real question isn’t how many wealthy people leave, but who leaves, and what they take with them.
What it does to markets
The clearest market effect is in gilts. Gains on UK government bonds are exempt from CGT, although the interest is taxable. AJ Bell has reported strong investor interest in low-coupon, short-dated gilts, where more of the return comes as a tax-free rise in price rather than taxable interest. I’d argue it’s concerning when investors pick products mainly to save tax rather than for long-term potential. It risks a herd mentality if that market turns. And it means less money for the companies that invest in R&D, launch new products and expand, which is what grows the economy, creates jobs and raises living standards.
The bigger question is whether tax shapes how businesses are built. Writing in The Times this week, Brent Hoberman and Stephen Fitzpatrick, who co-chair the campaign group Enterprise Britain, argue that CGT already encourages founders to “think small and take an early exit”, and that a rise would “starve companies of capital”.
They cite research across more than 30 countries linking higher CGT to less start-up funding, and point to competition from the US and its proposed $5m “platinum card”. That research shows a link, not proof of cause and effect, but the argument will resonate in the Treasury. Their alternative is a “repeat entrepreneur relief” for founders who reinvest their gains in new British businesses or funds.
The counterargument
The behavioural figures are estimates, not facts, and the IFS has warned they aren’t a reliable guide to the long run. Tax Justice UK points out that receipts rose sharply after the 2024 rise, despite predictions they would fall. The evidence on emigration relates more to non-dom changes than to CGT. And reformers argue that much of the leakage can be designed out: changing the treatment of assets at death, adding an exit charge and only taxing gains above inflation would leave fewer places to hide, though each would doubtless create new incentives of its own, with knock-on effects politicians may not have thought through.
There’s also a case for not raising taxes at all. Jim O’Neill, the former Goldman Sachs chief economist and a former adviser to Andy Burnham, has told the FT that a smaller fiscal buffer would be a better option than Budget tax rises, warning that the Chancellor must not undermine confidence just as growth returns.
So, it would seem, the real disagreement isn’t whether people respond to CGT. They do. It’s how much revenue those responses cost.
My read
A higher rate on its own is more likely to move the timing of the money than deliver its full theoretical yield. Sell early, sit tight or leave: every one of those responses is rational and each one shrinks the bill. That makes the most important CGT decision on 28 October perhaps not the rate at all, but the start date and the rules around it. An immediate change, as in 2024, closes the window. A change from April opens one. The psychology does as much work as the policy: loss aversion, the value of waiting, and speculation that has people acting before the Chancellor has announced a thing.
The Comms Read
For the Treasury, what Healey says on 28 October matters as much as the rate. If he raises CGT, the market will want clarity on the start date, any transitional rules and whether more changes are coming. A commitment to stability for the rest of this Parliament would help, though it’s a political promise, not a guarantee. If he doesn’t raise it, he should say so clearly, to stop the rumour-driven selling that has now shadowed three Budgets in a row. Healey has said he wants Britain to be a “country of wealth creation”. The Budget is where that line gets tested.
For companies, the risk is closer to home. Founder-led businesses, management teams with share options and employees in share schemes will all have questions in the next three weeks. For comms teams, get the factual guidance ready now: what might change, what won’t, and which decisions need individual tax advice. Don’t let speculation become the internal comms story that dominates the water cooler chat. Misinformation is very unhelpful when it comes to morale.
What to watch
The IFS Green Budget on 14 October; the start date of any change and any anti-forestalling rules; proposals on assets at death or an exit charge; how the OBR costs the behaviour; and whether Healey offers any promise of stability.
Also interesting...
Jaguar bets the opposite way to Porsche. In the same week Porsche said its 911 “will never be electric”, Jaguar unveiled its all-electric Type 01 in New York, a four-door GT starting at $130,500, aimed squarely at wealthy American buyers. It’s the first car of the brand’s controversial relaunch, after the bright pink Type 00 concept in 2024 drew criticism from car enthusiasts and some politicians. JLR is also recovering from last year’s cyberattack, which halted production, and plans to cut nearly 10% of its workforce through voluntary redundancies. Its rivals are hedging: McLaren says its customers aren’t interested in going electric and Lamborghini has ruled out an EV before the end of the decade. Two luxury icons, two opposite bets on what the rich will want to drive. One of them is going to look very clever, the other less so.
Time will tell. GLA & DYOR.
Disclaimer
This newsletter is published by James Lea / CorpCast for general information, educational and journalistic purposes only. Nothing in it constitutes financial, investment, legal or tax advice, or a personal recommendation, and it is not an offer, invitation or inducement to buy, sell or hold any security, cryptocurrency or other financial instrument.
Any views, opinions, forecasts or interpretations expressed are the author’s own personal opinions at the time of publication, do not reflect the views of any business or entity the author is affiliated with, and may change without notice. No account is taken of any reader’s personal circumstances, objectives or financial situation, and nothing here should be relied upon as the basis for any investment decision.
The author may from time to time hold long or short positions in securities, cryptocurrencies or other assets referenced in this newsletter, and may transact in them at any time without further notice. This is a standing disclosure covering all issues and is not repeated or itemised per asset.
Investing and trading involve substantial risk of loss, including the potential loss of your entire investment. Past performance is not a reliable indicator of future results. Figures, data and third-party information are believed reliable but are not guaranteed to be accurate, complete or up to date.
James Lea / CorpCast is not authorised or regulated by the Financial Conduct Authority. Always conduct your own independent research and consult a suitably qualified, FCA-regulated financial adviser before making any investment decision.