Reeves expected to focus rise in capital gains tax on share sales

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Chancellor Rachel Reeves is likely to target her expected increase in UK capital gains tax on the sale of shares, rather than second homes, according to former Treasury officials. 

They said the 24 per cent CGT rate for property sales was already set at a level deemed to maximise revenues for the Treasury.

Reeves has made it clear that she will not be “ideological” and raise taxes if they do not increase revenues.

She is looking to increase CGT in her October 30 Budget to help close an expected £40bn funding gap, and is therefore likely to focus on the 20 per cent rate charged on the sale of shares and other assets.

Edward Troup, former executive chair of HM Revenue & Customs and an ex-Treasury official, told the Financial Times: “If Rachel Reeves is sensible, she’d pick a single rate somewhere in the mid-20 per cent range.”

One option would therefore be to equalise the CGT rate for shares and property at 24 per cent.

The Times reported the 20 per cent rate could rise by “several percentage points”, raising a sum in the low billions of pounds.

That would be far less than some of the predictions of much bigger CGT increases, but HMRC modelling suggests that a big rise in the levy could lead to less revenues as wealthy individuals changed their behaviour.

Jeremy Hunt, former Tory chancellor, was advised by Treasury officials at his March Budget that he could “maximise revenues” from CGT on property sales by cutting the rate from 28 per cent to 24 per cent.

Hunt’s four percentage-point cut in the CGT rate for property sales was projected to raise £700mn over the first two years because of an expected increase in transactions.

This suggests Reeves would not be likely to gain revenues by simply reversing that cut.

The Treasury said: “We do not comment on speculation around tax changes outside of fiscal events.” 

Reeves is seeking to ensure the wealthy bear a fair share of the burden of closing the £40bn funding gap.

Prime Minister Sir Keir Starmer has said those with the “broadest shoulders should bear the heavier burden”. 

Starmer said earlier this week that reports that CGT could be lifted as high as 39 per cent were “wide of the mark”, in a sign ministers will shy away from boosting CGT rates much closer to those for income tax.

This comes despite arguments from some tax experts that the Treasury should embark on a sweeping CGT reform.

Research published this month by the Centre for the Analysis of Taxation suggested a CGT overhaul could raise up to £14bn a year for the government.

The study looked at the possible effects of a comprehensive reform that would bring CGT rates into line with those for income tax.

Neither Starmer, nor Reeves, has denied that a rise in CGT is on the cards, alongside a big expected rise in national insurance contributions by employers, and higher taxes on private equity executives and “non-doms”.