Rachel Reeves has been urged to implement an £18 billion tax increase, primarily targeting wealthy individuals in the South, to help rebalance the economy and address the North-South divide.
Currently, capital gains tax (CGT) — which is levied on the profit from the sale of assets like shares and buy-to-let properties — ranges from 10% to 28%, depending on the asset type and the taxpayer’s income.
This year, CGT is projected to generate £15.2 billion, so an increase could more than double the revenue collected by the Exchequer. Aligning CGT with income tax rates could push it as high as 45%. To soften the impact, the increase might be structured to apply only to gains exceeding inflation, potentially allowing for a threshold before CGT kicks in.
The Chancellor has not ruled out increasing capital gains tax. However, there are concerns that such a move could stagnate the housing market by deterring buyers, driving entrepreneurs to relocate, and making Britain a less attractive investment destination, potentially hindering economic growth.
The Institute for Public Policy Research (IPPR) also suggests considering higher dividend taxes and revising council tax to increase the burden on owners of high-value properties, which would predominantly affect those in London and the surrounding areas.
Additionally, the Chancellor has been advised to limit inheritance tax reliefs for businesses and agricultural land, aiming for broader reform. This could include replacing inheritance tax with a lifetime capital acquisitions tax to address intergenerational wealth inequality within this parliamentary term.
Marcus Johns, an economist at the think tank, argued that raising taxes would provide much-needed funds for the government to invest in underfunded areas and directly address inequality.
“We tax income from wealth less than income from work, and this preferential treatment benefits those in the wealthiest regions, like London and the South East. This disparity is not only unjust but also impedes our efforts to balance wealth and opportunities across different regions,” he stated.
“Sixty percent of private wealth in the UK is inherited, not earned through labor. Consequently, individuals who inherit little or nothing face significant challenges in building the wealth needed for a comfortable life.”
He also noted that capital gains in London are nearly five times higher per capita than in Wales.
