CGT reform rumours risk driving ‘unnecessary’ finance decisions

Speculation that a future government under Andy Burnham’s leadership could align capital gains tax (CGT) rates with income tax risks driving unnecessary finance decisions, Isio has warned.

Isio head of wealth planning, Mark Campbell, highlighted that the rumours had prompted some investors and business owners to consider bringing forward asset sales to get ahead of potential changes.

He noted that while no formal policy had been announced, the rumours had emphasised how uncertainty alone can shape taxpayer behaviour.

"It's worth remembering that we've been here before,” Campbell stated. “Speculation over potential CGT increases has been something of a Budget tradition in recent years, so this is not a new story.

“The concern is that people may make significant financial decisions based on rumour, rather than confirmed policy.

“We are already seeing some individuals crystallise gains early to pre-empt changes which may never materialise, often leaving them worse off than if they had adhered to their original plans.

"At the same time, such behaviour can bring forward tax receipts for HMRC. The cynic might argue that if speculation alone encourages people to pay tax earlier than planned, it delivers a short-term boost to the Treasury without any formal policy change. If that's the case, it feels like a very underhand way of increasing revenues.”

Campbell also warned that pushing CGT rates too high risked driving individuals to defer deposits, which would reduce transactions, slow investment, and potentially generate less tax than expected.

He urged any CGT reform to strike the right balance, as while he acknowledged raising revenue was important, so was maintaining incentives for investment, entrepreneurship and economic growth.

“Tax policy should encourage sensible long-term decision-making, not drive behaviours based on political speculation,” Campbell added.

Former Chancellor, Jeremy Hunt, also urged policymakers not to increase CGT rates, warning that this would have a negative effect on the economy, especially if increased beyond 24 per cent.

Speaking on IG's The Art of Investing podcast, Hunt said that the economic consequences of higher CGT rates would outweigh any short-term political gains.

“If you increase your CGT above 24 per cent, you will get less revenue, not more, because investors will change their behaviour,” he warned.

"They won't sell their assets, they'll move their assets abroad, they'll move abroad themselves. And you will get less money, not more.

“So if you're a left-wing government that wants to raise more money to redistribute it to poorer areas or to put it into public services, don't do this because you'll get less money for the things that you care about.

"If you're a centre-right government that wants to encourage enterprise and wealth creation, obviously don't do it because you're going to discourage precisely the thing that will make the economy dynamic and successful."

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