Capital Gains Tax: The Beginning of the End?

By Tom Saltmer, Partner, Burgess Hodgson


Recent comments from Wes Streeting have reignited debate around the future of Capital Gains Tax (CGT) in the UK, with proposals to align CGT rates with Income Tax rates as part of a broader push toward what has been described as a form of “wealth tax”.

Whilst rumours of CGT reform have circulated ahead of multiple fiscal events in recent years, this is one of the clearest indications yet from a senior political figure that such a policy could become a serious consideration.

Alongside the proposed alignment, Wes Streeting also referenced potential reliefs for “entrepreneurs”, although the scope and detail of these remain unclear. It is uncertain whether any future relief would extend beyond the current Business Asset Disposal Relief (BADR) regime.

A Significant Shift in Tax Policy

Since its introduction in 1965, Capital Gains Tax rates have historically remained below Income Tax rates. Although there have been periods where the systems were more closely aligned, exemptions and reliefs generally ensured that effective CGT rates remained lower.

Today, the contrast is substantial. The current headline CGT rate stands at 24%, compared with Income Tax rates of up to 45% for higher earners. Any move toward alignment would therefore represent one of the most significant changes to the UK tax landscape in decades.

At this stage, it is important not to overreact. These comments represent an early policy proposal from one potential Labour leadership contender, with no certainty either around the leadership outcome or whether similar proposals would be adopted more broadly across the party.

However, the discussion alone is likely to prompt many individuals and business owners to review their current position and future plans.

What Should Business Owners and Investors Be Thinking About?

Business Exits

Historically, anticipated changes to CGT have often triggered increases in transactional activity as business owners seek to complete sales ahead of any tax increases.

For owners considering an exit in the medium term, this may prompt questions around timing. Preparing, marketing and completing a business sale can take many months, meaning opportunities to act quickly can be limited if reforms are introduced at short notice.

Extracting Value from Businesses

Certain methods of extracting value from a business are currently subject to CGT treatment rather than Income Tax rates. Distributions made through solvent liquidations, for example, may become less attractive if rates were aligned.

As a result, some shareholders may consider accelerating planned transactions or restructuring activity if the likelihood of reform increases.

Reviewing Business Structures

Potential CGT reform may also lead business owners and investors to reconsider how future ventures and investments are structured.

Different ownership models, holding structures and investment vehicles may become more or less tax efficient depending on how any future legislation is designed.

Investment Portfolios

Individuals holding investments with significant unrealised gains may also wish to review their portfolios. If CGT rates were to increase materially, there could be advantages to crystallising gains under the current regime.

Naturally, investment decisions should not be driven by tax alone, but tax changes can have a significant impact on long-term returns and planning strategies.

Looking Ahead

For now, these proposals remain speculative and there is no immediate indication that changes are imminent. Nevertheless, the direction of travel is becoming increasingly clear: taxation of capital is likely to remain firmly in focus over the coming years.

For business owners, investors and entrepreneurs, this is a timely reminder of the importance of proactive planning. Reviewing structures, succession plans and future exit strategies early can help preserve flexibility should the tax landscape shift significantly.

As with all potential tax changes, taking professional advice before acting is essential.