Chancellor Healey dismisses Capital Gains Tax increase ahead of Budget

UPDATE - follow-up to Chancellor rejects calls to raise Capital Gains Tax in Budget, sources say: Chancellor John Healey has decided against raising Capital Gains Tax in the upcoming Budget, choosing instead to avoid an investor exodus from the UK.

Reactions and Warnings

Some Labour MPs and cabinet ministers had previously pushed for equalising Capital Gains Tax with income tax to help address a system they viewed as penalising work. However, critics warned that a tax hike could end up costing the government money if wealthy individuals moved abroad or deferred selling assets. HMRC estimated last year that lifting the higher rate of CGT by 10% would reduce Treasury receipts by £3.6bn in 2028-9. Prime Minister Andy Burnham also faced warnings from figures like his former adviser Lord Jim O'Neill, who suggested higher rates would send the wrong message to business.

Budget Pressures

Healey faces a constrained fiscal landscape for his first Budget on 28 October, as Labour's 2024 manifesto pledged not to raise income tax, National Insurance, or VAT. Senior banking executives expect the chancellor to raise taxes on the banking sector due to bumper profits, while the Liberal Democrats suggested a bank windfall tax could raise £14bn. Meanwhile, Conservative leader Kemi Badenoch is expected to urge the government to cut spending and reduce borrowing by £70bn.

Context

Capital Gains Tax is charged on profits made from selling assets like shares or secondary properties, with basic-rate taxpayers currently paying 18% and higher-rate taxpayers paying 24%. Governments often balance tax policy carefully to generate state revenue while maintaining investor confidence and preventing capital flight.