Wednesday, June 12, 2024 at 6:15 p.m.
After Labour failed to clearly rule out a rise in capital gains tax this week, City bosses warned that a rise in capital gains tax could mean the “death of entrepreneurship” in the UK.
Shadow Chancellor Rachel Reeves ruled out income and corporation tax rises under a Labour government, but said only that there were “no plans” to increase the rate of capital gains tax (CGT).
The comments sparked fears in business circles that Labor was leaving open the possibility of a tax grab in its first budget, with low capital gains tax rates seen as one of the main ways entrepreneurs can make cash through their businesses, allowing them to pocket much of the profits from asset sales.
“It would mean the death of the City and the death of entrepreneurship,” said Alasdair Haines, chief executive of challenger bourse Aquis. City AM
“There are a lot of entrepreneurs in this country. To do that would definitely kill them.”
Under the current system, higher-rate taxpayers are subject to a 24% tax on profits from residential property, a 28% tax on investment fund managers’ “performance fees” and a 20% tax on profits from other taxable assets.
Labour has already promised to abolish investment fund tax, but the shadow chancellor is under pressure from members of the shadow cabinet to raise the broader capital gains tax rate to the same level as income tax to fund public services, The Guardian reported.
“If someone who wants to support a business tries to kill it first, that just seems stupid,” Haines added.
Experts have warned that moves to raise taxes could discourage entrepreneurs from setting up their own companies and clash with Labour’s plans for economic growth.
“Capital gains tax only affects a small number of people, but it mainly impacts those who drive the economy and create growth. Politically it seems easier as it inconveniences fewer people, but economically it has a huge impact,” warned Chris Groves, European head of private client and tax at Withers.
Nicholas Gardner, a tax partner at international law firm Ashurst, said the price increases were “likely to be seen as detrimental to investment and competitiveness for the City”.
Labour will publish its manifesto today, revealing the full extent of its tax plans. In Tuesday’s Budget, the Conservatives proposed a cut in capital gains tax for landlords who sell their homes to current tenants.
