Wes’s capital gains tax hike
22nd May 2026
Posted in Articles, Capital Gains Tax by Andrew Marr
Wes Streeting has proposed that capital gains should be taxed at the same rate as income tax which presumably means that gains could be taxed at up to 45% (or more if they also increase income tax). He has claimed that this will raise £12 billion extra annual tax.
Although Streeting is still a 20-1 longshot to become the next Prime Minister, there is a chance that he could be the next Chancellor of the Exchequer and so he may get the chance to put his plans into action. In any event, as a policy that may appeal to many Labour voters, it should be seen as a serious prospect, whoever gets in. The problem with these kinds of ideological policies is that they fail to appreciate that capital gains are very different to income and so should arguably be treated differently.
Capital gains v income
A capital gain has often arisen either from cash that has been left sitting in an illiquid asset such as shares or from unpaid time spent by an entrepreneur building his business without any guarantee of a pay-off in the future. In contrast, income is usually earnt at a defined rate (as in the case of a salary or interest) and has less risk attached to it. Furthermore, given that capital gains can arise from assets that have been held for many years, they include an element of inflation. Up to 2008 there was something called indexation relief which stripped out the effect of inflation, but since then inflationary gains – which arguably should not be counted – have been taxed.
Example
Ronald bought a commercial property in 2009 for £1 million and sold it in 2026 for £1.5 million. At 24% this transaction would give rise to capital gains tax of £120,000.
Let’s now take the Big Mac test, that famous test of buying power. In 2009 a Big Mac cost £2.29 and it currently costs £4.79. In 2009 £1 million would have bought 436,681 Big Macs and in 2026 £1.5 million would have bought 313,152 Big Macs. Ronald has made a loss in terms of Big Macs and yet he is still being asked to pay capital gains tax – which will further reduce his Big Mac buying power to 237,996, almost halving what he could buy before!
What does Wes say?
Streeting seems to ignore these kinds of issues. In a recent interview with Nick Robinson he stated, “It’s unfair that a cleaner pays a higher marginal rate of tax than a landlord whose properties appreciate in value”. Presumably he is making the mistake (above) of conflating income tax with capital gains tax. Even so, while he may be technically correct, his statement is misleading. Taking employee’s National Insurance (‘NI’) into account, a cleaner who earns over £12,570 (the personal allowance) will pay 28% on every extra pound up to £50,270 and 42% thereafter, whereas the landlord disposing of a property will pay a maximum rate of 24%. Perhaps a more relevant fact is that a cleaner earning £50,270 would pay income tax and NI of £10,554, giving a 21% effective rate. This rate is lower if they are paid less.
Anyway, comparing income tax to capital gains tax is not comparing eggs with eggs. If we consider how landlords are being hit with income tax, it could be said that they are already paying their fair share. For several years now, landlords have often been taxed on profits far in excess of the commercial rental profit that they make. This is because a deduction for financing costs has been restricted to basic rate relief only. Therefore, they can end up with a scenario where they break even commercially but still end up with a tax bill. If this wasn’t enough, income tax rates for landlords have been hiked by 2% from 6 April 2027.
Forbes Dawson view
All may not be doom and gloom because snuck away in Streetings’ proposals is the suggestion that there could also be targeted entrepreneurial capital gains tax reliefs. Dare we hope that we may see the introduction of a much friendlier Entrepreneurs’ Relief (or Business Asset Disposal Relief, as it is now called) than we have at the moment? We think that this is unlikely because just keeping the ‘miserly’ current rate of 18% would look good against a potential top capital gains tax rate of 45%.
Streeting has also mentioned that he would clamp down on ways to convert income to capital. Will we finally see measures that target ‘money-boxing’ which is the practice of allowing reserves to accumulate prior to a sale and effectively realising the value of this cash at capital gains tax rates? This may not be required if he plans to align capital gains tax to income tax but you get the point!
In all this uncertainty, one thing seems very likely: that any increase to capital gains tax will not yield an extra £12 billion of tax. Mr Streeting should read the OBR’s report on behavioural responses to capital tax measures before making such wild claims. It is not inconceivable that behavioural impacts (such as people leaving the UK) could lead to the tax-take actually going down!
