Capital gains tax frontrunner for hike in Budget

An increase to the capital gains tax has emerged as the front-runner when it comes to potential tax increases in next month’s Budget, according to Labour insiders and economists who spoke to The i Paper. Andy Burnham and Chancellor John Healey are mulling whether to raise taxes in their first Budget on 28 October. An increase in the UK’s borrowing costs and the economic fallout of the international conflict have slashed the headroom which the Government holds against its fiscal rules constraining borrowing. If Healey wants to rebuild the headroom, he will have to either increase taxes or cut spending.

Capital gains tax is paid on the profit of the sale of an asset such as a second home or shares. At present, the levy sits at rates for basic-rate income taxpayers compared to higher and additional-rate taxpayers. Accountants from Blick Rothenberg noted that capital gains tax receipts reached record highs recently, alongside an all-time high in the number of individuals paying the tax. However, experts caution that because the levy is optional — relying on when an owner chooses to sell an asset — raising the rate could cause asset sales to plummet if individuals delay transactions or move overseas.

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Views on the feasibility and economic impact of altering capital gains tax and other wealth-related levies remain sharply divided. While some research organizations suggest substantial sums could be raised to support public services, critics and advisory firms argue that aggressive hikes risk harming entrepreneurship and reducing overall tax take if behavioral avoidance spikes. Similar debates surrounding wealth taxation and economic impacts have surfaced in international jurisdictions, where policy planners similarly wrestle with protecting middle-class taxpayers while pursuing revenue from high-earning segments.

At the same time, experts urge caution against fragmented tax adjustments. According to reporting from the BBC, the Institute for Fiscal Studies has warned against directionless tinkering, advising instead for deeper structural alignment across different forms of income to ensure fairness and support economic growth. Beyond the three main taxes, income tax, National Insurance, and VAT, the IFS cautions there are serious constraints on other major levies, noting that a wealth tax would face huge practical challenges.

As preparations continue, attention shifts toward the formal announcement and subsequent legislative steps. Observers will be watching to see whether the Treasury pursues targeted adjustments to asset and death taxes or opts for a broader overhaul of the taxation framework ahead of the 28 October Budget.