With the new Labour leadership now settling into Downing Street, attention is already turning to Chancellor John Healey’s first Budget, which has been confirmed for Wednesday 28 October 2026.
The Chancellor has promised a Budget built around “fiscal discipline”, while Prime Minister Andy Burnham has indicated that the Government intends to maintain Labour’s existing commitments not to increase the main rates of Income Tax, National Insurance or VAT. That inevitably raises the question of where additional tax revenues might come from if the Government wants to fund its spending commitments while remaining within its fiscal rules.
One area attracting considerable attention is Capital Gains Tax (CGT).
There has been growing speculation that the Government could increase CGT rates, potentially going significantly further and bringing them into line, or closer into line, with Income Tax. Such a change could have substantial implications for investors, landlords, entrepreneurs and anybody considering the sale or transfer of a valuable asset.
It is important to stress that no change to the main CGT rates has yet been announced. However, enough has been said by senior Labour figures for this to be an area taxpayers should be watching carefully in the run-up to October.
Why is Capital Gains Tax in the spotlight?
Prime Minister Andy Burnham has previously argued that the UK “overtaxed labour and undertaxed wealth”, something Reuters has identified as one reason why CGT is likely to remain under consideration as the Government looks at potential sources of additional revenue.
The idea of bringing CGT and Income Tax more closely together has also been advocated by several senior Labour politicians.
During the Labour leadership discussions earlier this year, Wes Streeting proposed equalising CGT and Income Tax rates while introducing protection so that investors would not be taxed on gains caused purely by inflation. He argued that the current disparity between tax on earned income and tax on capital gains creates an unfair system in which income generated from assets can sometimes be taxed considerably more lightly than income earned through employment.
Louise Haigh, now a senior figure within the Burnham administration, has similarly argued for CGT to be brought more closely into line with Income Tax as part of broader tax reform.
None of this means that equalisation will appear in October’s Budget. The Chancellor himself has not announced proposals to change the CGT regime. Nevertheless, it explains why tax advisers and financial commentators are treating a potential CGT increase as one of the measures worth watching.
How does Capital Gains Tax work at the moment?
For the 2026/27 tax year, the main rate of CGT is 18% for gains falling within the basic-rate band and 24% for gains above it. Individuals also currently have a £3,000 annual CGT exemption.
CGT can apply when you dispose of assets including:
- shares or investments held outside an ISA;
- second homes and buy-to-let properties;
- business assets;
- certain valuable personal possessions; and
- cryptoassets.
Your main home will normally qualify for Private Residence Relief, subject to the relevant conditions, while investments held within an ISA are generally outside the CGT regime.
For business owners, Business Asset Disposal Relief (BADR) is particularly important. The rate applying to qualifying disposals increased to 18% from 6 April 2026, with a £1 million lifetime limit on qualifying gains.
What could “equalising” CGT and Income Tax actually mean?
For taxpayers in England, Wales and Northern Ireland, the principal Income Tax rates for 2026/27 are currently 20%, 40% and 45%. Scotland operates separate Income Tax rates and bands.
The most straightforward interpretation of CGT equalisation would therefore be a move away from the current 18% and 24% structure towards rates of 20%, 40% and 45%, depending on a taxpayer’s income and gains.
That would be a relatively small increase for somebody whose gain falls entirely within the basic-rate band, but potentially a very substantial increase for higher and additional-rate taxpayers.
For illustration, consider an individual with a £100,000 taxable capital gain after allowances, with all of that gain falling within the relevant higher tax band.
Under the current 24% CGT rate, the tax would be £24,000.
If the gain were instead taxed at 40%, the bill would rise to £40,000 – an additional £16,000.
If an additional-rate taxpayer’s gain were taxed at 45%, the equivalent liability would be £45,000 – £21,000 more than under today’s 24% rate.
These figures are purely illustrative. No new rates have been announced and there is no guarantee that any reform would simply apply the existing Income Tax rates directly to every type of capital gain.
Indeed, the Institute for Fiscal Studies has argued that proper alignment is more complicated than simply changing headline CGT rates. Tax on company shares, for example, also needs to take account of Corporation Tax already paid on company profits. The IFS has suggested that a more coherent reform could combine higher CGT rates with measures such as inflation indexation, so taxpayers are not charged tax simply because an asset has risen in nominal value over a long period.
What could this mean for landlords?
Landlords could be among those most directly affected by any significant increase.
CGT is generally due when an individual sells an investment or buy-to-let property at a gain, after allowable costs, losses and reliefs are taken into account.
At present, the main CGT rates applying to residential property are 18% and 24%.
If the higher rate were ultimately increased towards 40% or 45%, the difference on a long-held investment property with a significant gain could be considerable.
This becomes particularly relevant for landlords who are already considering selling property, restructuring a portfolio, transferring assets or planning for retirement.
However, it would be unwise to bring forward a property transaction solely because of Budget speculation. Transaction costs, Stamp Duty Land Tax, mortgages, rental income, future property values and wider financial objectives all need to be considered alongside tax.
What could it mean for investors?
Investors holding shares, funds or other chargeable investments outside tax-efficient wrappers such as ISAs could also be affected.
The annual CGT exemption is now only £3,000, having fallen substantially from the £12,300 allowance available as recently as 2022/23. As a result, relatively modest investment gains can now create CGT liabilities.
If CGT rates were then increased as well, careful management of investment disposals, losses and available exemptions could become increasingly important.
That does not mean investments should automatically be sold before the Budget. Investment decisions should primarily reflect financial objectives, risk and long-term strategy rather than speculation over one potential tax announcement.
What about people selling businesses?
This is perhaps one of the most important areas to watch.
Entrepreneurs have already seen the rate available through Business Asset Disposal Relief increase from 10% before April 2025, to 14% in 2025/26 and now 18% from 6 April 2026.
Further reform could therefore make a significant difference to business owners planning an exit.
However, it should not automatically be assumed that a policy of CGT equalisation would remove BADR altogether. Wes Streeting’s proposals earlier this year included the possibility of retaining preferential treatment for genuine entrepreneurs. More detailed reform might therefore distinguish between passive investment gains and gains made by somebody who has built and invested in a trading business.
Until the Government publishes concrete proposals, business owners contemplating a sale should therefore avoid making assumptions about what the post-Budget regime will look like.
What they can do is understand their current position, establish whether they qualify for BADR and model the potential tax consequences of different scenarios.
Why would the Government want to make the change?
There is a relatively simple fairness argument behind equalisation.
An employee earning an additional £100,000 through work may pay Income Tax at rates of up to 45%, whereas an individual making a £100,000 taxable gain on an asset may currently pay CGT at 24%.
Supporters of reform argue that this gap encourages taxpayers who are able to do so to structure returns as capital rather than income and means that wealth generated through assets can be taxed considerably more lightly than money earned through work.
A more closely aligned system could reduce that incentive and potentially simplify parts of the tax system.
But would increasing CGT actually raise more money?
This is where the debate becomes considerably more complicated.
Unlike Income Tax deducted from salary, CGT is usually triggered when somebody chooses to dispose of an asset. If tax rates become substantially higher, individuals may simply decide not to sell.
Economists refer to this as the “lock-in” effect.
The Institute for Fiscal Studies has warned that simply increasing CGT rates without reforming the wider system could weaken incentives to invest and take risks while encouraging people to hold on to assets for tax reasons. The IFS therefore favours broader reform of both the rates and the way taxable gains are calculated rather than simply increasing the headline rate in isolation.
There are similar concerns within the investment industry. Recent commentary from Hargreaves Lansdown has argued that substantially higher CGT could make investing less attractive at exactly the time the Government is trying to encourage more individuals to invest in UK businesses and capital markets.
This means the October decision is unlikely to be quite as straightforward as “higher rates equal more revenue”.
Could a change take effect immediately?
It would be easy to assume that any changes announced on 28 October would begin with the new tax year on 6 April 2027. However, that is not guaranteed.
When the main CGT rates were increased in the October 2024 Budget, the new rates took effect immediately. This means a mid-tax-year change has recent precedent.
For people already considering a business disposal, investment sale or other substantial transaction, the possibility of an immediate Budget-day change is therefore worth discussing with an adviser.
Again, this does not mean taxpayers should rush into transactions purely to beat a theoretical tax rise. Tax should be one part of a much wider commercial and financial decision.
What should taxpayers be doing before the Budget?
For most taxpayers, the right approach is preparation rather than panic.
If you have significant investments outside an ISA, own a second or buy-to-let property, are considering selling a business or are planning another transaction that could create a substantial capital gain, now is a sensible time to understand what your potential exposure looks like under the existing rules.
It may be worth reviewing:
- the original acquisition cost of assets and records of allowable expenditure;
- any capital losses available to offset against gains;
- whether assets are held in the most appropriate ownership structure;
- available ISA allowances and other tax-efficient investment structures;
- whether you may qualify for Business Asset Disposal Relief;
- the timing of any disposal you are already planning; and
- how different potential CGT rates would affect the net proceeds you would receive.
Tax planning should always be based on your individual circumstances and on legislation as it stands, rather than on newspaper speculation. However, modelling potential outcomes before the Budget can put you in a much stronger position to make an informed decision once the Chancellor announces his plans.
A Budget worth watching closely
The Government has given no confirmation that Capital Gains Tax will be equalised with Income Tax on 28 October.
Nevertheless, the political discussion around taxing income and wealth more consistently means there is a credible possibility that CGT will feature in the Chancellor’s thinking.
For landlords, investors and business owners in particular, the difference between today’s 24% higher CGT rate and a potential rate closer to 40% or 45% could be substantial.
The key is therefore not to make rushed decisions, but to understand your position before the Budget rather than after it.
If you are considering selling a business, investment property or other significant asset, or would simply like to understand how a change in Capital Gains Tax could affect you, speak to the team at Richard Riley & Associates. We can review your circumstances, model the potential tax implications and help you plan with greater confidence ahead of the October Budget.