The government led by Andy Burnham is facing fresh calls to overhaul Capital Gains Tax (CGT) and shut down two specific loopholes, a move that could raise over £11 billion from the wealthiest taxpayers while benefiting more than half of those currently liable for the levy.
The demand comes from Better!, a thinktank coalition comprising Tax Justice UK and Compass, whose new report describes CGT as "one of the UK's most dysfunctional and economically inefficient taxes." The report, endorsed by Neal Lawson, a key ally of the Labour Prime Minister, argues that the tax on profits from asset sales remains riddled with unfair exemptions and rates that lag behind international standards.
Current CGT Rates Still Lowest in G7
Although Chancellor Rachel Reeves introduced modest adjustments in the October 2024 Budget, lifting the main and higher rates to 18% and 24% respectively, the report stresses that these figures remain the lowest among G7 nations. The authors argue that this disparity is untenable, especially as British communities grapple with the escalating cost of living.
"This is something Britain's communities struggling with the cost of daily living cannot afford," the report warns. The thinktank proposes a fundamental shift in philosophy: taxing wealth with the same vigour applied to income. Specifically, it recommends equalising CGT rates with income tax bands and introducing a new investment allowance to encourage productive investment.
Two Loopholes Targeted for Closure
The report identifies two loopholes that should be closed without delay. First, it calls for the removal of the "death uplift," a provision that currently allows inherited assets to be revalued at the date of death, effectively wiping out any capital gains accrued during the deceased's lifetime. Second, it proposes a "settling up" charge, designed to ensure that individuals relocating abroad pay their fair share of tax on gains built up while they were UK residents.
These reforms, the thinktank argues, would not only make the system fairer but would also deliver a substantial fiscal boost. According to the report, such changes would leave more than half of current CGT payers better off, while simultaneously raising over £11 billion from the wealthiest individuals.
Investment Allowance to Support Growth
Far from harming economic prospects, the proposed reforms—particularly the inclusion of an investment allowance—would support investment, productivity, and growth. This view is echoed by prominent research bodies including the Institute for Public Policy Research (IPPR), the Centre for Tax Analysis (CenTax), and the Institute for Fiscal Studies (IFS).
The thinktank also highlights a broader issue of corporate tax transparency. It points out that the vast majority of multinational companies refuse to disclose how much corporation tax they pay in the UK or elsewhere. This lack of transparency, the report argues, leaves the government unable to verify whether these firms are meeting their tax obligations, making it easier for corporations such as Amazon to shift profits to tax havens.
Global Profit Shifting and UK Revenue Loss
The scale of the problem is significant. Across the globe, 36% of multinational profits are artificially shifted to tax havens each year, resulting in a US$226 billion reduction in corporate income tax revenues worldwide. Using 2021 data, the UK alone suffered an estimated £71 billion of profit shifting, leading to a loss of approximately £15 billion in corporation tax revenues.
The report concludes that these reforms are essential not only for fairness but also for the fiscal health of the nation. By closing the loopholes and equalising tax treatment, the government could restore much-needed revenue while ensuring that the wealthiest contribute their fair share.
