Could Capital Gains Tax Soon Be 45%? What Wes Streeting’s Proposal Could Mean for Investors and Entrepreneurs

Wes Streeting has made a stir in the news headlines in the past few weeks proposing that UK capital gains tax (CGT) rates should be aligned with income tax rates, potentially pushing the top CGT rate to 45%. He claims that this should generate an additional £12 billion in annual revenue.

While Streeting remains a longshot to become Prime Minister, he could easily find himself in a senior economic role in a future Labour government. More importantly, this is exactly the sort of policy that resonates with many Labour voters, meaning it should be taken seriously regardless of who ultimately ends up in Number 10.

The main problem with this proposal is that capital gains are not the same as income. Income is earned and taxed annually. Capital gains often build up over decades, are exposed to investment risk and are taxed on inflationary gains as well as real gains. Treating the two identically may sound fair, but the economics are far more complicated.

The £12 billion figure also assumes taxpayers sit still, however history suggests otherwise. Higher CGT rates often encourage investors and business owners to delay disposals, reducing the very tax revenues governments are trying to increase. It may also entrench a "hold until death" mindset, with investors choosing not to sell assets at all in the hope of benefiting from the CGT uplift on death, further undermining the expected tax take.

Streeting has acknowledged that not all capital gains are alike. He has suggested that any reforms could include protections for genuine entrepreneurs, with lower CGT for those taking risks and building businesses. That may sound encouraging for business owners, although whether this translates into a significantly more generous Business Asset Disposal Relief remains to be seen. Simply retaining the current preferential rate of 18% would look considerably more attractive if mainstream CGT rates were increased towards 45%.

Streeting has also promised to crack down on arrangements that convert income into capital gains. That could mean renewed attention on "money-boxing" strategies, where cash is accumulated in a company before a sale to secure capital rather than income tax treatment.

For taxpayers sitting on significant unrealised gains, there is an obvious question: if there is a realistic prospect of substantially higher CGT rates in the future, should gains be accelerated while current rates remain available? That decision depends on individual circumstances, but one thing is clear: CGT is back on the political agenda, and business owners and investors would be wise to pay attention.

If you are considering selling a business, disposing of investments, restructuring your affairs or simply want to understand how potential tax changes could affect you, now may be a good time to take advice. We are helping clients assess their options and plan ahead in an increasingly uncertain tax environment.

‍How can Sanctuary help?

With CGT reform back on the political agenda, business owners and investors should consider how potential rate increases could affect future disposals, exits, restructurings and investment decisions.

At Sanctuary, we help clients assess their current position, model the possible impact of future tax changes, and consider whether planning steps should be taken while current rules remain available. This includes advice on business sales, investment disposals, ownership structures, residence planning and wider UK/UAE tax considerations.

Visit our Tax & Advisory service page to find more about our tax & residency advisory services, or contact us for a bespoke consultation via the contact form or email us at: hello@sanctuary.ae.