A reform of the Capital Gains Tax Act: Rachel Reeves plans significant changes

Rachel Reeves, the British Chancellor of the Exchequer, is considering a significant increase in capital gains tax in her forthcoming budget, according to a recommendation by the left-leaning think tank Resolution Foundation. The foundation suggests raising the capital gains tax to as high as 39%, aligning it with dividend income rates, which can currently be as high as 39.35%. Through a comprehensive reform of capital gains tax legislation, including the limitation of tax reliefs to avoid higher rates, the foundation's economists estimate annual revenues of around £9.5 billion could be generated. Among other proposals, they are considering taxing unrealized capital gains upon the death of an owner and targeting investors who leave the country. However, Reeves has already ruled out the introduction of a so-called "exit tax" at the border. The think tank estimates that Reeves will need an additional £10 billion from taxpayers, over and above the increases already announced in the manifesto, to avoid cuts to departmental budgets and to meet credit commitments. Harmonizing the capital gains tax with dividend taxes would mean that entrepreneurs pay the same tax rate, regardless of whether they draw their income as dividends or capital gains. Currently, capital gains tax rates range from 10% to 28%, while the dividend tax for top earners can reach 39.35%. However, some analysts warn of a potential capital gains tax shock, which could have the opposite effect: a sell-off in assets to avoid future tax burdens. This could lead to a decline in new investments in British assets. A model developed by HM Revenue and Customs also shows potential losses to the Treasury due to cautious asset sales behavior, especially in the real estate sector. Nevertheless, the Resolution Foundation sees opportunities to offset these losses through stricter action against tax reliefs. Such a reform could generate approximately £2 billion annually through taxation at death alone. Additionally, indexing capital gains, where only gains above inflation are taxed, could mitigate the economic impact on investors. This approach was first introduced by Geoffrey Howe in 1982. Overall, the foundation forecasts that Britons could face tax increases of at least £44 billion annually by 2027-28 if Reeves maintains her commitment not to return to austerity policies. A Treasury spokesman emphasized: "We do not comment on speculation about changes to tax policy outside of fiscal events." These considerations are joined by a potentially up to £3 billion intervention in online casinos and slot machines, following recommendations from the Institute for Public Policy Research. Reeves received positive news on Friday when it was announced that the UK economy grew by 0.2% in August. This expansion follows two months without growth and underpins the country's economic commitment.