Andy Burnham, the anticipated next Prime Minister, is reportedly planning a significant overhaul of Capital Gains Tax (CGT) that would align its rates with income tax bands. This move, feared by some, would introduce three new CGT rates of 20%, 40%, and 45%, mirroring the current income tax structure.
Current CGT Rates and History
Currently, CGT is charged at 18% for basic rate taxpayers and 24% for higher rate taxpayers. These rates were increased from 10% and 20% respectively in Rachel Reeves' October 2024 Budget. Prior to this, former Chancellor Jeremy Hunt had reduced the annual CGT-free allowance from £12,300 to just £3,000.
Aligning CGT with income tax would create a level playing field between income from employment and profits from investments. It would also prevent business owners and executives from taking income via company shares to benefit from lower tax rates.
Advisor Influence and Political Context
Close advisor Louise Haigh MP has called for CGT rates to be revised, fueling speculation about Burnham's intentions. Grant Thornton noted: “Burnham’s views on the taxation of wealth v labour also imply he may be open to reviewing Capital Gains Tax (CGT) rates. There has been much speculation over the past decade the main rate could be more closely aligned with higher Income Tax rates.”
However, fundamental changes have not been made by recent Labour or Conservative governments, aside from the modest uplift in October 2024. Grant Thornton added: “Whether this is revisited remains to be seen. Wes Streeting, one of the potential chancellor candidates, has recently come out publicly in favour of such changes, albeit with concessions for genuine entrepreneurship and reinvestment.”
Fiscal Constraints and Potential Impact
Burnham has committed to the 2024 Labour manifesto pledge not to raise income tax, VAT, or National Insurance during this Parliament. Combined with his intention to adhere to fiscal rules on borrowing, his options for funding new policies are limited outside spending cuts. Grant Thornton explained: “While it is difficult to infer too much at this stage given the lack of detail available, what we do know points toward the taxation of assets, land and capital gains all potentially being on the agenda for a Burnham led Government.”
The alignment would mean CGT rates increasing to 20%, 40%, or 45% depending on earnings. Specifics are likely reserved for the next Budget, with a summer of speculation expected.
