Wes Streeting’s proposal to align capital gains tax (CGT) rates with income tax levels could lead to a sharp reduction in government revenue, according to recent analysis. Streeting, a candidate to become chancellor under Andy Burnham, suggested last month that the reform would generate £12 billion annually and create a fairer tax system by targeting wealthier asset holders rather than workers.

However, analysis from investment platform IG challenges this assertion, estimating that the Treasury could lose up to £7.8 billion each year due to behavioral changes among taxpayers. These responses include delaying the sale of assets such as property and shares, which would defer or reduce taxable gains.

Capital gains tax is levied on the profits from selling assets like shares, business holdings, or second properties. Exemptions apply to primary residences, pension and ISA holdings, and personal possessions valued below £6,000. Taxpayers benefit from a CGT allowance of £3,000 annually. Current CGT rates are set at 18% for basic-rate taxpayers and 24% for higher- and additional-rate taxpayers. Streeting’s plan would increase the rates to 20%, 40%, and 45% respectively.

Streeting argued the existing system disproportionately penalizes income from work rather than wealth, emphasizing the need for a more equitable tax framework. “The system is penalising work ... We need a wealth tax that works,” he said in May.

IG’s analysis drew on HM Revenue & Customs (HMRC) data factoring in likely taxpayer responses to increased CGT rates. Michael Healy of IG noted that such rate hikes could discourage investment due to increased tax burdens. Specifically, IG estimated that raising the CGT rate for additional-rate taxpayers (those earning over £125,140 annually) from 24% to 45% could reduce Treasury revenue by £4.6 billion. Increasing the rate from 24% to 40% for higher-rate taxpayers (income between £50,271 and £125,140) might cost £3.2 billion, while a slight rise from 18% to 20% for basic-rate taxpayers could generate approximately £10 million. Overall, these changes would result in a net loss of nearly £7.8 billion to the government.

The impact of CGT rate adjustments has precedent. In her 2024 autumn budget, Chancellor Rachel Reeves raised CGT rates for non-property assets from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher- and additional-rate taxpayers. This move corresponded with a decline in CGT revenues, with the Treasury collecting £13.6 billion in 2024–25 compared to £14.9 billion the previous year.

The contrasting analyses highlight the complexity of tax policy and the challenge of balancing fairness with revenue generation. Streeting’s proposal aims to address perceived inequities in the tax system, while critics caution that increased rates may lead to unintended economic consequences and reduced government income.