As the UK gears up for a general election on 4 July 2025, investors are paying close attention to one tax in particular: Capital Gains Tax (CGT). This levy on profits from the sale of assets, such as shares, property, or business interests, could become a key policy battleground, especially as political parties pitch their fiscal visions to voters.
While no formal changes have been announced, speculation is rife that CGT may be targeted for reform after the election, especially under a potential Labour government. With historical proposals and think tank recommendations advocating for a higher CGT rate or alignment with income tax, investors are considering how to best prepare for what may come.
What Is Capital Gains Tax and Who Pays It?
Capital Gains Tax is levied on the profit when you sell an asset that’s increased in value. It's the gain you make that’s taxed, not the amount of money you receive. In the 2024–25 tax year, individuals in the UK have an annual CGT allowance of £3,000. Anything above that is taxed at:
- 10% for basic rate taxpayers
- 20% for higher and additional rate taxpayers
(18% and 28% respectively for residential property gains.) It’s commonly paid by investors, landlords, and entrepreneurs who sell shares, second homes, or businesses.
Why Is CGT a Potential Target for Reform?
There’s a growing narrative that CGT is underused compared to income tax. Critics argue that it allows wealthier individuals to pay lower effective tax rates than those earning income through work.
The Institute for Fiscal Studies (IFS) has long called for aligning CGT rates with income tax rates, which could mean a top rate of 45% instead of the current 20%. Although this proposal hasn't made it into any official party manifestos yet, it aligns with Labour’s past discussions on tax fairness.
Moreover, reducing the annual allowance or removing exemptions could generate billions for the Treasury, which might be appealing for a government facing fiscal pressures.
Political Context: What Could Happen After 4 July?
With Labour currently leading in the polls, attention has turned to what their tax policy could look like if they take office.
While Labour leader Sir Keir Starmer has ruled out raising income tax, National Insurance, or VAT, he has remained tight-lipped on CGT, neither confirming nor denying potential reforms.
This ambiguity fuels investor speculation. It’s worth noting that the last Labour manifesto (in 2019) hinted at a review of CGT, and Shadow Chancellor Rachel Reeves has emphasised the need for a “fairer tax system.”
How Are Investors Responding to the Speculation?
Financial advisers and wealth managers report a marked increase in client enquiries about realising gains before 4 July. Some investors are accelerating the sale of second properties, business assets, or large portfolios to lock in current CGT rates. Tax experts warn against rash decisions but acknowledge that pre-emptive planning is wise. Popular strategies include:
- Using the £3,000 CGT allowance
- Gifting assets to a spouse to double allowances
- Utilising ISAs, pensions, or Enterprise Investment Schemes (EIS)
For business owners, the timing of asset disposals has become a critical conversation.
Historical Precedents for Mid-Year Tax Changes
While tax changes typically come into effect at the start of a tax year (6 April), there have been exceptions. For example, the 2020 abolition of Entrepreneurs’ Relief lifetime allowance was announced and applied immediately.
So while it’s unlikely, a post-election Budget in autumn could introduce immediate CGT reforms. The uncertainty means that waiting until April 2026 may not be risk-free.
Expert Opinions: Is a CGT Shake-Up Likely?
Paul Johnson, director of the IFS, has stated that CGT is “ripe for reform” and that aligning it with income tax would make the system more equitable. However, other analysts caution that major tax overhauls are politically risky and complex to implement.
Rebecca Cave, tax editor at AccountingWEB, says: “Unless Labour has a clear majority and political capital to spend, we’re unlikely to see drastic reforms immediately.” In short, while change is possible, it may be incremental rather than sweeping.
Conclusion
As the UK prepares to vote on 4 July, speculation is mounting over whether Capital Gains Tax will be reformed under a potential new government. While no party has formally pledged changes, investors are acting cautiously, with some accelerating asset disposals before the vote.
Experts advise against panic but recommend strategic tax planning amid the uncertainty. With the future of CGT hanging in the balance, this often-overlooked tax could take centre stage in the post-election fiscal agenda.
Frequently Asked Questions
What is Capital Gains Tax (CGT)?
Capital Gains Tax is a levy on the profit from selling assets such as shares, property, or business interests. It only applies to the gain, not the total sale price.
How much CGT do I currently pay?
Basic rate taxpayers pay 10% (or 18% on property), while higher-rate taxpayers pay 20% (or 28% on property). There's also a £3,000 annual tax-free allowance.
Could CGT rates increase after the election?
It’s possible. Some analysts suggest a Labour government might align CGT with income tax, raising the top rate to 45%, though nothing is confirmed.
Should I sell assets now to avoid higher CGT?
Selling early might secure current rates, but you should weigh the tax against your broader financial goals. Speak to a tax adviser before making any major moves.
What strategies help reduce CGT?
Using your annual allowance, spreading gains across tax years, and investing in tax-free vehicles like ISAs or pensions are common ways to reduce CGT liability.
