Conservatives warn higher capital gains tax could cut Treasury revenue

A fresh analysis commissioned by the Conservative analysis of Treasury data shows that raising the top rate of capital gains tax (CGT) would ultimately lower the amount of money the Treasury collects. The model, built on internal government figures, indicates that each one‑percentage‑point increase in the net return to investors would shrink the taxable pool by 3.6 per cent.

The analysis and its assumptions

The study was presented to the Labour government ahead of its first Autumn Budget 2024. It argues that the current top CGT rate of 24 per cent is already high enough to deter owners of businesses, shares and second homes from selling, thereby shrinking the tax base. The tipping point, according to the model, is a rate of 22 per cent, beyond that, revenue falls.

"What this actually shows is what happens when you raise taxes and put the fear of God into investors," said shadow chancellor Mel Stride on X.

HMRC’s own estimates, the analysis notes, predict a loss of revenue if the rate is increased, yet senior Labour ministers and allied think‑tanks continue to push for a hike.

Political backdrop

Current CGT rates sit at 18 per cent for basic‑rate taxpayers and 24 per cent for higher‑rate earners, after former chancellor Rachel Reeves raised them from 20 per cent. The 2024/25 tax year saw record CGT receipts of £127bn, an 82 per cent jump from the previous year, according to the Institute of Public Policy Research. Yet Treasury chief John Healey faces pressure to push the rate higher.

Support for a further increase comes from Louise Haigh, the Duchy of Lancaster, a close ally of prime minister Andy Burnham. Burnham has warned that the UK “overtaxed labour and undertaxed wealth” but has also pledged not to drive the wealthy out of the country.

Looking ahead

Economists warn that the behavioural response to higher CGT could be stronger than for any other tax. Simon French of Panmure Liberum said the data “pours cold water on the idea that there is a pot of recurring tax revenue to go for here”. If the government proceeds with a hike, it may face a shrinking revenue stream and political push‑back from investors.

For a broader view of the government's fiscal stance, see Burnham's promise to ease business costs ahead of the upcoming budget.

In the short term, the Treasury is likely to tread carefully, weighing the immediate appeal of higher rates against the longer‑term risk of eroding the very base that funds public services.