Budget 2024: Raising capital gains tax increase on wealthy could cost country money - here's why

However, in the run-up to the event, as wealth managers our eyes will be drawn to what is shaping up to be one of the key fiscal events of recent times with the Budget on October 30.

Chancellor Rachel Reeves has spoken about “incredibly tough choices” to address a supposed £22bn black hole in the public finances. Prime Minister Keir Starmer has meanwhile suggested that the burden should be borne by those with the “broadest shoulders”. So, what might be in store?

Given Labour has pledged not to increase the four taxes which raise the most revenue, capital gains tax (CGT), pensions and inheritance tax (IHT) are in the spotlight.

The easiest way for Labour to raise cash would be to increase CGT.

Relatively few people pay CGT – usually less than 0.5 per cent of the population in any one year. However, the percentage of people paying the tax has increased noticeably over the past decade, while the tax liability has jumped more than 300 per cent in that time to £16.7 billion.

If CGT rates were changed, Labour could equalise CGT with the marginal Income Tax rate, as Conservative Chancellor Nigel Lawson did in 1988. If so, that would double the CGT rate for Higher Rate taxpayers to 40 per cent and by even more for Additional Rate payers to 45 per cent. (residential property gains currently attract a higher rate of 24 per cent).

Given most CGT taxpayers are wealthier, that would boost the government’s coffers considerably, on paper at least. But it would also encourage people to avoid the increased levy through a mixture of financial planning, buying offshore bonds, swapping shares for collective investment funds, which can trade within the fund structure without incurring CGT, investing in an Enterprise Investment Scheme or Venture Capital Trust and simply not selling.

Back in 1988 Lawson increased the CGT rate for the wealthy, yet decreased it for standard rate payers. CGT receipts dropped considerably over the following five years.

Labour also pledged to maintain the triple lock for state pensions and committed to a ‘review of the pensions landscape’ to improve ‘pension outcomes’ and increase investment in UK markets. However, this doesn’t rule out changes to the way pensions are taxed, such as subjecting state pension income to tax, changing/reducing pensions tax relief, or tax-free lump sums that can be withdrawn, or removing exemptions from IHT for pension savings.

​​​​​​There has also been speculation around a few other potential tax changes.

These include non-dom status, stamp duty land tax and agricultural property relief.

While not triggering the concerns that a more left-wing Jeremy Corbyn-led Labour Government would have raised, Starmer’s government will most probably need to raise money to fulfil its plans to improve a range of public services. To do that, it may make changes to long-standing taxes, allowances, investment schemes and rules that could hit the unwary.

Rob Travis is a Senior Investment Director for Investec Wealth & Investment (UK).