Equalising CGT with income tax rates would cost Treasury almost £8bn a year – IG

Equalising capital gains tax (CGT) with income tax rates would cost the Treasury nearly £8bn a year, according to modelling from IG.

The investing and trading platform used HMRC’s published estimates and CGT taxpayer distribution data to estimate that the proposal would reduce Treasury revenues by around £7.8bn annually.

In May, former Health Secretary, Wes Streeting, who IG said was rumoured to be in the running for Chancellor if Andy Burnham becomes Prime Minister, proposed a ‘wealth tax’ in an interview that would see CGT matched to income tax’s banding system.

While Streeting stated the change could raise £12bn, analysis from IG suggested that, once taxpayer behavioural responses are accounted for, the move would reduce Treasury revenues.

IG said the loss would be primarily driven by the fact that higher CGT rates discourage investors from selling assets.

It estimated that the revenue impact from basic-rate taxpayers would be an increase of £10m a year.

However, for higher-rate taxpayers, the move would cost the Treasury £3.2bn annually, while for additional-rate taxpayers the impact would be -£4.6bn a year.

The firm urged policymakers to leave investment CGT rates unchanged to avoid sending the wrong message to potential investors when broader participation in capital markets was needed.

“In a few weeks we will have a new Prime Minister and possibly a new Chancellor in Downing Street,” said IG managing director of UK & Ireland, Michael Healy.

“While both will have a difficult job on their hands, we are urging whoever takes office not to reach for the tax lever when it comes to investing.

“At a time when we need more people investing and building long-term financial resilience, making investment gains significantly more heavily taxed risks discouraging participation.

“The UK already has some of the lowest levels of retail investment among major developed economies and we should be looking for ways to increase engagement, not reduce it.

“Our analysis, based on HMRC’s own published assumptions, suggests that aligning CGT with income tax rates would not only make investing less attractive but would also prove fiscally counterproductive, costing the Treasury billions of pounds.”

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