
Capital losses: Why increasing CGT will deter investment, slow growth and reduce revenue
Think tank: Centre for Policy Studies
Author(s): Daniel Herring
October 25, 2024
This report from UK think tank the Centre for Policy Studies highlights the damage that will be done to the economy if the Chancellor uses next week’s Budget to hike capital gains tax (CGT).
Despite raising relatively little revenue for the Treasury (1.5% of all revenue), CGT is an incredibly distortive and complex tax, paid by just 369,000 taxpayers in 2022-23.
Recent modelling by the CPS has shown that raising the CGT rate to 33%, 39% or 45% would lead to the UK falling from 30th in the OECD for overall tax competitiveness to 32nd, 33rd or 34th. This would leave the UK with one of least competitive tax regimes in the OECD.
‘Capital Losses’ by Daniel Herring, CPS tax and fiscal policy researcher, highlights how the current CGT regime derives 80% of its revenue from just 38,000 individuals. Even small behavioural changes from this group in response to the Budget could have major revenue impacts, the opposite of those the Chancellor envisions, as people move assets overseas to more tax competitive environments or hold onto assets for longer to avoid being liable for taxable gains.
Such a move would reduce revenue, drive away investment and damage economic growth.