Chancellor John Healey is expected to introduce only a modest increase in Capital Gains Tax (CGT) in the upcoming Budget, according to reports from the Financial Times, stepping back from proposals that would have aligned rates with Income Tax.
The decision follows warnings from market analysts that significant tax increases could prompt investors to relocate capital abroad, potentially impacting the UK property market at a time when buy-to-let yields have reached their highest level since 2011.
Tax rate differential
Some senior government members had advocated for bringing CGT rates in line with Income Tax levels, which would have substantially increased the tax burden on property owners selling investment assets. Currently, the highest CGT rate stands at 24%, compared to the top Income Tax rate of 45% paid by higher earners.
The proposed alignment would have particularly affected landlords and property investors disposing of second homes or rental properties, sectors already facing pressure from recent regulatory changes and declining property viewings as the buyer-seller gap widens.
Political pressure for wealth taxation
Earlier this year, Labour leadership candidate Wes Streeting called for a Wealth Tax targeting landlords during his campaign to replace Keir Starmer as Prime Minister. Streeting argued that the current system was inequitable, claiming tenants paid more tax than their landlords and that lower CGT rates compared to Income Tax “penalised work”.
Last year, former Labour leader Lord Kinnock urged then Chancellor Rachel Reeves to introduce a Wealth Tax in her Budget. Reeves rejected the proposal for a tax on assets above £10 million, citing concerns that wealthy individuals could easily move assets offshore. However, she did implement increases to landlord taxation, raising Income Tax on rental income to 22% from 20%, with higher rates of 42% and 47%.
Market implications
The anticipated limited CGT increase suggests the government is balancing revenue generation against concerns about capital flight and market stability. Property investors and landlords, who have faced multiple tax changes in recent years, may view the decision as providing relative certainty for investment planning, though any increase will still impact disposal strategies and investment returns.
