Labour Party leader Andy Burnham has been presented with a series of proposals from the thinktank Compass, calling for substantial reforms to the UK’s Capital Gains Tax (CGT) system. Burnham, Makerfield MP, faces increasing pressure to champion these changes aimed at addressing economic inefficiencies and promoting fairness within British society.
Compass, led by Neal Lawson, an ally of Burnham, has outlined a comprehensive plan in its latest report, “Ending Business As Usual.” The thinktank suggests equalising CGT rates with income tax rates-currently set at 20%, 40%, and 45% for different brackets-to create a fairer tax structure and minimise tax avoidance strategies where individuals convert income into capital gains.
Capital Gains Tax, charged on the profit made from selling assets, remains one of the UK’s most economically inefficient taxes. Characterised by numerous avoidance loopholes and comparatively low rates, CGT presently applies to only around 0.5% of adults annually-fewer than the number who pay the top rate of income tax. This is partly because CGT does not apply to gains made from selling a primary residence, which limits the number of taxpayers who incur it significantly.
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This tax framework contributes to pronounced regional wealth disparities. For instance, during the 2015–2019 period, data suggests that one neighbourhood in Kensington, with a population of approximately 6,400, realised as much capital gains as the combined total of Liverpool, Manchester, and Newcastle.
Further recommendations from Compass include introducing an investment allowance that would reduce the effective tax rate for 51% of current CGT payers and leave it unchanged for another 7%, thereby incentivising investment. The report also proposes abolishing the “uplift at death” rule, which allows assets held until death to escape CGT, a practice that distorts investment decisions.
Additional proposals call for the implementation of “rebasing on arrival” and “deemed disposal on departure” rules. These measures would ensure that gains accrued by individuals while residing in the UK are appropriately taxed within the country, eliminating opportunities to avoid tax by leaving the jurisdiction.
If adopted, these reforms would principally impact a small group of wealthy individuals while making the tax system more equitable. The investment allowance alone would result in over half of all CGT payers benefiting financially, with 40% effectively removed from the tax burden altogether.