Budget 2026: Early reports suggest Capital Gains Tax to rise

With Budget Day now just weeks away reports of increases to Capital Gains Tax (CGT) are starting to swirl. With the press quoting figures of up to 46% our head of policy, Charles Pitt, explains why such a move could be disastrous for the sector and stifle economic growth.

As we approach Budget Day on 28th October, we can expect a daily dose of speculation as to which taxes might rise or where the Government might try to make cuts in public spending.  

A regular theme has been proposals to raise CGT. Dale Vince, the founder of energy business Ecotricity and a Labour donor, has proposed raising CGT as high as 45%, claiming it would raise £20 billon. His proposals include measures to raise the personal allowance, which would, according to Vince give “600 quid to hard pressed families.”  

The problem is, it's not that simple.  

Putting up taxes, particularly taxes referred to as ‘voluntary’ like CGT, which are only incurred after discretionary activity like selling a property, will often decrease the amount raised.  

That’s because policy announcements, or even just speculation like this, influences behaviour just as much as it influences calculations. Faced with the prospect of paying twice as much tax on selling, most landlords will simply sit on the asset until something changes.

CGT ‘a mess’

Paul Johnson, director of the Institute for Fiscal Studies, has rubbished claims that increasing CGT to income tax rates would raise as much as £14 billion, citing HMRC estimates that a 10% increase in CGT would in fact cost £3.5 billion.  

Earlier this year Johnson called for wholesale reform of CGT – “it’s a mess, and a damaging and inequitable mess at that.”  

They’re both right about the system being not-fit-for-purpose.  

We  would also like to see an honest debate about CGT, a debate that doesn’t just fixate on what a ‘fair’ rate looks like. 

In principle the tax is designed to tax so-called ‘unearned income’ – and lower rates of CGT can encourage people to turn income into assets and reduce their tax liability.  

This makes it easy for politicians to offer a simple solution – equalise the tax rates so that the someone working and paying income tax is not paying more than someone simply sitting on an asset. 

Of course, this ignores two major components; inflation and risk. Investing in an asset requires an individual to defer any potential benefit, and risk deriving no benefit at all. This is not the case for ‘earned’ income. At the same time the period of time the asset is held naturally devalues the buying power of the money used to acquire it, thanks to the cumulative effect of inflation.  

So the solution is far from simple – in fact, it could be disastrous, undermining investment incentives and reducing risk taking, key driver of economic growth.

How does the current system work?

The current system already means that people can pay high taxes on an asset that has simply increased in value with inflation – i.e. not increased in real terms at all.   

If I buy a house for £250,000 and sell it 10 years later for £360,000, you could say I'd gained £110,000. But cumulative inflation (CPI) over the last decade is around 41%, meaning that more than £102,000 of that ‘gain’ is just inflation.

In other words, to have the same buying power in 2026 as £250,000 in £2016 would require approx. £352,000. Even deducting 24% CGT results in a real terms loss in purchasing power, 40 or 45% would make a mockery of the whole investment.  

We need to make sure we  only taxing true gains, not inflation, unless we want to remove any vestige of incentive that remains to invest in homes.  

When thinking about CGT reform, the Chancellor must think about what behaviours he wants to encourage.  

For landlords, who already pay a higher rate when selling an additional property, it is a deterrent to sell, which slows down the housing market and limits options for landlords who need capital to invest in upgrading their portfolio.
This in turn puts at risk the Government’s ambitions to improve energy efficiency in the private rented sector.

What does the NRLA want to see?

We  made our formal submission to Treasury earlier this month, setting out our proposals to ensure a tax regime that supports the housing market and helps landlords to invest in improving their properties.

We are clear  that any rise in CGT could only be acceptable as part of a comprehensive package of tax reforms.

Any increases in CGT must take into account inflation, Stamp Duty, acquisition costs and investment in improvements – that way a tax on the capital gained would reflect a true increase in value.

We also want to see a tax regime which recognises length of ownership, reflecting the economic value that letting a home over decades offers, as well as preventing speculation on short term gains.  

We won’t know what the Chancellor intends for certain  28th October. But in the meantime, we  will continue to make representations to the Government about the dangers of a blanket equalisation of CGT.

When highly respected economists are pouring cold water on claims that CGT rises would solve the Chancellor’s problems you can be sure the solution isn’t half as simple as it at first might appear.  

To read our budget submission in full click the button below.