Autumn Budget 2026: Could Burnham hike Capital Gains Tax to align with income tax? It's possible

Could the Budget this year contain a big hike in Capital Gains Tax? It could be another low-hanging fruit politically speaking, but the merits of such a move are questionable from a revenue-raising perspective, let alone what kind of signal it might send to businesses, entrepreneurs and markets.

Lord Jim O’Neill, who advised Andy Burnham in preparation for his taking on the role as Prime Minister but declined an official government role, has pointed to CGT being among the easier taxes to change politically.

Speaking on LBC this week he noted that with hikes to VAT, NI and income tax off the table “something like capital gains tax looms out as one of the things you’d go go for, not least because traditionally most Labour think tanks think it makes sense to equalise that to income tax”.

But various economic modelling suggests raising CGT can lower the overall tax take. The last data we have from the government* indicates the increase to CGT rates since April 2026 leads to a net loss to the Treasury in most years. Notably this shows that that a 10-percentage point increase on the higher rate of CGT reduces revenue collected by £3.6bn by 2028/29.

The OBR has some details on why, outlining how individuals might likely respond to a rise in CGT rates. This may include changing the timing of asset disposals – ie holding onto paper gains and waiting for a more favourable time to sell, shifting between assets or even leaving the country. If however a rise in CGT rates is set at some point in the future it could produce a short-term boost to revenues as owners rush to cash in their assets before the change. Recent increases to CGT rates have seen an 89% spike in CGT revenues for the Treasury.

But the message would be clear enough. “It will force even more genuine risk takers to be discouraged and think about either moving or not doing as much of this kind of thing as they’ve done,” Lord O’Neill said.

Labour has already made significant changes to the CGT system since the 2024 Budget, when Rachel Reeves hiked CGT rates from 10% and 20% for basic and higher rate taxpayers respectively.

For 2026/27, the main rates are 18% for gains falling within the basic rate band and 24% thereafter.  The annual exempt allowance has also fallen sharply in recent years from £12,300 as recently as 2022/23 to £3,000 today for individuals, and £1,500 for most trusts.

Entrepreneurs have not escaped the tightening of the CGT regime. Business Asset Disposal Relief (BADR), which allows qualifying business gains to be taxed at a reduced rate, has been increased from 10% to 18% over the past two years. Investors’ Relief has been raised in lockstep, with both remaining subject to a £1 million lifetime limit. In practical terms it can mean paying 80% more tax.

Dividend tax rates have also increased to 10.75% for basic rate taxpayers and 35.75% for higher rate taxpayers, while the additional dividend rate remains 39.35%.

Could the government align CGT with income tax bands?

It’s not out of the question but seems drastic. A measured increased in rates similar to that pursued by Rachel Reeves seems more likely. Having ruled out any increase to the three main taxes – NI, VAT and income – the Chancellor like many before have few levers to pull. Politically we know it fits as the PM believes earned income is over-taxed, and capital and wealth is under-taxed. But the recent spike in gilt yields has lowered the fiscal headroom by as much as half, while pressure to raise spending in defence is mounting just when it looks increasingly difficult for the Chancellor to enact welfare cuts (at least the previous govt largely came unstuck because of this issue). While sacred cows like the triple lock on pensions will increasingly become part of the conversation, a more political expedient option is CGT. 

In a letter to the Prime Minister Patriotic Millionaires UK called for "reforms to capital gains tax, including equalising it with income tax". This was part of a Policy Paper entitled 'Ten tax reforms and closed loopholes to raise over £50 billion in a single year' published earlier this year. It may not be the Chancellor’s view but it's one example of how it could be an appealing lever to pull politically for the Burnham administration.

If CGT were fully aligned, a higher-rate taxpayer's gains could be taxed at 40% rather than 24%, while an additional-rate taxpayer could face 45%, although the exact design would depend on government policy.

For someone investing outside an ISA, the increase from the old 20% higher-rate CGT to today's 24% has already raised the tax burden materially. A move to full income tax rates would be another major step change, effectively increasing the tax on gains by around 67% for higher-rate taxpayers (24% → 40%) and 88% for additional-rate taxpayers (24% → 45%).

Example: £100,000 Gain

Assume a higher-rate taxpayer sells shares and realises a £100,000 gain.

For an additional-rate taxpayer:

Any changes to CGT would likely take effect from the start of the next year – ie from April 2027, but this is not assured. The changes announced in 2024 took effect immediately and so-called anti-forestalling measures came in alongside. 

BADR is better?

The Treasury data from The Direct effects of illustrative changes bulletin) last published in June 2025, indicates changes to BADR could have a net positive impact for the Treasury.

One option is to remove the lower rate to simply tax it in line with the higher and additional rate of 24%. The £1m lifetime limit on gains that can qualify for BADR could be also reduced. Before the 2024 Budget the Institute for Fiscal Studies estimated that abolishing BADR would raise about £1.5bn in additional revenue. The downside to this approach is that would fall disproportionately on smaller businesses, which would hurt growth.

Other CGT options?

Perhaps the biggest CGT relief is that on the sale of your main residence. This is tricky one to tinker with but we could see the government impose a cap on this exemption to target the ‘super-rich’, amounting to a kind of wealth-tax-lite approach that defers the tax liability on your property to its sale. This would come with big implications for Inheritance Tax liabilities, no doubt.

The Chancellor may also look at changes to the ‘rebasing’ regime whereby assets accrued at death are revalued at today’s prices, effectively removing any capital gain. The Chancellor could look at treating this as a disposal and therefore liable to CGT (or assets could pass on death without rebasing, deferring the tax liability to when the new owner sells), though either would come with significant IHT implications and create a double-taxation trap. If the Chancellor wants to tackle either of these then it could come with reforms to IHT to simplify the entire system.

*The Direct effects of illustrative changes bulletin

Behavioural responses to capital tax measures - Office for Budget Responsibility

Millionaires tell new Prime Minister: Tax us, we’re proud to pay — Patriotic Millionaires UK