Wes Streeting, a prominent figure in the Labour Party and former health secretary, has announced his intention to raise the rate at which capital gains are taxed to match the higher and top rates of income tax if he is elected leader of the party. Streeting refers to this proposal as a 'wealth tax,' though it is technically an alignment of capital gains tax (CGT) with income tax rates rather than a direct wealth tax. Currently, higher and additional rate taxpayers in the UK pay marginal rates of 40% or 45% on earnings, but only 24% on capital gains over £3,000 per year (with an exemption for an individual's first home) or 32% on gains from carried interest [1].
Streeting claims, citing the Centre for the Analysis of Taxation, that aligning CGT and income tax rates could generate an additional £12 billion annually for the Treasury. However, the article notes skepticism about this figure, pointing out that capital gains tax can be avoided by not selling assets and that liabilities are wiped out upon the asset owner's death, though inheritance tax may then apply [1].
The proposal is not without precedent; in 1988, Chancellor Nigel Lawson aligned income tax and CGT rates, arguing it brought greater neutrality to the tax system and was consistent with corporate taxation. However, the current top rate of income tax is higher than in 1988, and a CGT rate set at 40-45% would be the highest in Europe. The article suggests this could drive more wealth creators away from the UK, a trend reportedly accelerated by Chancellor Rachel Reeves' abolition of the tax exemption on offshore trusts in October 2024 [1].
The article also discusses the rationale for historically lower CGT rates, noting that part of any capital gain is due to inflation, which is why reliefs and allowances have been introduced to tax only 'real' gains. Additionally, it is argued that lower CGT rates incentivize risk-taking and entrepreneurship, which benefit the broader economy [1].
CONCLUSION
Wes Streeting's proposal to align capital gains tax with income tax rates represents a significant potential shift in UK tax policy, with the possibility of raising substantial revenue but also risking capital flight and reduced entrepreneurial activity. The market is likely to view the proposal as high-impact, with considerable debate over its effectiveness and potential unintended consequences.