City alarm over Labour capital gains hike

A move to hike capital gains tax could spell the “death of the entrepreneurship” in the UK, a top City figure has warned, after the Labour party failed to firmly rule out the move this week.

Shadow Chancellor Rachel Reeves has shut down the possibility of hikes to income tax and corporation tax under a Labour government but has said only that the party has “no plans” to lift the capital gains tax (CGT) rate.

The comments have triggered fears across business that Labour is leaving the door open to a tax raid in its first budget. The lower CGT rate is seen as one of the key ways that entrepreneurs make cash through their business, allowing them to pocket more of the profits from any potential sale of assets.

“It would be the death of the City and entrepreneurialism,” Alasdair Haynes, the boss of challenger stock exchange Aquis, told City A.M.

“We have a huge number of entrepreneurs in this country, you would absolutely kill them dead if you decided to do that.”

Under the current system, those in higher tax bands are charged a 24 per cent rate on gains from residential property, 28 per cent on ‘carried interest’ for investment fund managers, and 20 per cent on gains from other chargeable assets.

While Labour has already committed to scrapping the investment fund rate, the shadow chancellor is reportedly under pressure from members of the shadow cabinet to bring the wider CGT rate in line with income tax to fund public services, the Guardian Reported.

“You would think that somebody who wants to support business, if their first act is to go out and kill it, that would just be stupid,” Haynes added.

Experts have warned that any move to hike the levy could hammer the incentive for entrepreneurs to set up their own firms and conflict with Labour’s plans to grow the economy. 

“Although capital gains tax only affects a small number of people, it primarily affects the people who drive the economy and create growth. It seems easier politically because you annoy less people, but economically it has a real impact,” Chris Groves, Regional European Head of Private Client and Tax at Withers, warned.

Nicholas Gardner, tax partner at global law firm Ashurst said a rise is “likely to be viewed by the City as detrimental to investment and competitiveness”.

Labour will set out its tax plans in full as it launches its manifesto today. The Conservative party offered a capital gains tax break to landlords who sell to their current tenants in its budget on Tuesday.