UK’s Wes Streeting calls for wealth tax via capital gains change
Luxury properties in the Kensington and Chelsea district of London, U.K.
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The dispatch
Jockeying for position in the as-yet-unlaunched contest to lead Britain’s governing Labour Party, Wes Streeting, the former health secretary, has promised a wealth tax if elected leader.
“We need a wealth tax that works,” he told the BBC last week. “A pound made from simply owning assets should not be taxed less than a pound made from a hard day’s work.”
Strictly speaking, Streeting is not actually proposing a wealth tax. Rather, he wants to align the rates of capital gains tax (CGT) and income tax.
Presently, higher and additional rate taxpayers pay marginal rates of 40% or 45% on earnings, but are charged 24% on capital gains over £3,000 (around $4,000) per year (an individual’s first home is exempt) or 32% on gains from carried interest.
Citing work by the Centre for the Analysis of Taxation, a centre-left think tank, Streeting claimed aligning the rates would net the Treasury an additional £12 billion annually.
That seems optimistic. Capital gains tax is easily avoided by not selling assets, and any liability is wiped out when the owner of those assets dies — although the U.K.’s hefty 40% inheritance tax may be incurred.
It’s different this time
Such a move has been debated for a while. Rachel Reeves, the chancellor (finance minister), urged it in a 2018 pamphlet.
And there is a precedent. Nigel Lawson, one of Britain’s greatest reforming chancellors, aligned income tax and CGT rates in 1988, arguing it brought “greater neutrality in the tax system,” while being consistent with how companies were taxed.
The big difference between then and now is that the top rate of income tax is currently higher.
A CGT rate set at 40-45% would be the highest in Europe and probably drive more wealth creators away — a process Reeves is thought to have triggered in October 2024 when she abolished Britain’s tax exemption on offshore trusts.
Another potential flaw is that CGT is historically lower than income tax because part of any capital gain will be due to inflation.
It is why various chancellors have introduced reliefs and allowances over the years to ensure only “real” gains, rather than inflationary ones, are taxed.
There is also an argument that CGT should be lower than income tax because those incurring it usually do so after taking risks benefiting the economy, such as launching a business and employing others.
So what of a more straightforward wealth tax? Well, the better-off have already been targeted by the current government via an increase in the CGT rate on carried interest, the move on offshore trusts and hikes in dividend taxation.
There is also a looming “mansion tax” coming in April 2028 on homes worth more than £2 million and, in addition, the U.K. already has some of Europe’s highest death taxes.
But…
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