Rachel Reeves has been encouraged by a group of millionaire entrepreneurs to consider raising £14bn through an increase in capital gains tax during the upcoming budget announcement. The group of wealthy investors believes that raising the tax rate on asset disposals would help generate essential funds for public services without negatively impacting investment in the UK.
According to a report by the IPPR thinktank, which holds influence with the Treasury, these millionaire entrepreneurs support aligning the capital gains tax rate with the higher income tax rate. They argue that CGT is not a significant factor in investment decisions for entrepreneurs, who are more concerned with issues like access to financing, market opportunities, and economic conditions.
Mark Campbell, the co-founder of Higgidy pies, emphasized that higher CGT rates would not deter real investors in Britain. He stated that entrepreneurs focus on factors other than tax rates when establishing businesses. Graham Hobson, the co-founder of Photobox, echoed this sentiment, stating that entrepreneurs are motivated by passion and creating value rather than low taxes.
Julia Davies, a millionaire investor, also emphasized that tax rates have never dictated her decisions to fund innovation or pursue business opportunities. The group of millionaire entrepreneurs believes that a fairer tax system is needed to ensure a healthy society and economy for future generations of entrepreneurs.
Currently, most types of capital gains are taxed at 20%, which is significantly lower than the top income tax rate of 45%. The report recommends equalizing CGT rates with income tax rates, a system that was previously introduced in the 1988 budget. This would involve a rate of 20% for basic rate taxpayers, 40% for higher rate taxpayers, and 45% for additional rate taxpayers.
While there have been discussions about potentially increasing CGT rates to raise additional revenue, HMRC analysis suggests that a substantial increase could lead wealthy individuals to reorganize their tax affairs or even leave the country to avoid higher rates. The current CGT generates around £15bn annually, but concerns have been raised about the potential impacts of a significant rate hike.
Pranesh Narayanan, a research fellow at IPPR, highlighted that recent claims about the detrimental effects of increasing CGT rates are exaggerated. He stated that many millionaires have expressed that aligning CGT with income tax would not impact their investment decisions or entrepreneurial activities.
The Treasury has not provided any comments on potential tax changes outside of official fiscal events. It remains to be seen how the government will address the issue of capital gains tax in the upcoming budget announcement.
