In its Revenue and Reform report published today (10 September), the think tank stated that its three proposed reforms could generate over £20bn while adhering to the ‘triple tax test’ of improving tax system efficiency, upholding manifesto commitments, and ensuring those with the “broadest shoulders” bear the greatest burden.
The Resolution Foundation highlighted that capital gains tax (CGT) “should be a key focus” for the chancellor, recommending the alignment of marginal CGT rates for shares with dividend tax rates and taxing capital gains from property similarly to wages.
Additionally, the Westminster-based think tank suggested introducing CGT exit charges for those relocating abroad and applying the tax at death (or deferring it), as these currently offer ways to avoid CGT altogether.
Currently, employees in the UK face a top tax rate of 47%, while the top capital gains tax (CGT) rate for shares is significantly lower at 20%, with relief options potentially reducing this to 10%. The Resolution Foundation has estimated that reforming CGT, particularly by aligning it more closely with income tax rates, could generate around £8bn annually for the government.
Lindsay James, investment strategist at Quilter Investors, highlighted that such a reform would likely have a significant impact on the City of London, given its importance as a financial hub. However, she stressed the need for the government to balance tax reforms with the UK’s attractiveness as a business-friendly environment.
“While CGT appears to be a likely target for reform, the government must ensure that the UK remains an appealing place to start and grow a business,” James said. She pointed to the example of the US, where a combination of a strong labour market, reduced taxes, and less regulatory red tape for start-ups has led to substantial economic benefits. Ensuring similar conditions in the UK, she argued, is vital for fostering continued economic growth.