A website that describes itself as promoting “popular capitalism” is urging the government not to consider raising Capital Gains Tax on landlords and others in this month’s Autumn Statement.

A blog on the Cap X site says that whenever politicians are casting around for taxes to increase, one hoary old chestnut is the desire to increase CGT to the same rate as income tax. 

“Sure as night follows day this misconceived and ill-informed idea has been floated as a potential component of the upcoming budget [on November 127]” it says.

The site explains how politicians often depict CGT as being paid largely or exclusively by the rich, whereas in reality many ordinary people are hit by the measure – and it cites one example as being “someone selling their buy-to-let because they need the cash.”

The site goes on to says that raising CGT leads to the so-called ‘lock in effect’ where people who would otherwise sell assets such as buy to lets, instead hold on to them in the hope that the tax falls eventually.

“International evidence shows that when CGT rates are cut revenue raised from the tax goes up, sometimes dramatically. For example, when the CGT rate in Ireland was halved the amount raised nearly doubled” explains Cap X.

And it says many gains which may be subject to CGT – whether at the current rate or a higher one – are not real gains at all thanks to the high level of inflation. 

“Given our current inflation rate of 10 per cent, if an asset was bought for £100,000 and sold two years later the sale price would have to be at least £121,000 to avoid a loss being made. So the state would tax this entirely illusory ‘gain’, which only occurred because it failed to keep inflation under control. That’s just confiscation.”

Back in 2020, when Rishi Sunak was Chancellor, he commissioned a report from the Office for Tax Simplification which suggested the current maximum CGT rate of 28 per cent be raised closer to income tax, where the top rates are 40 per cent and 45 per cent in England and Wales. Buy to let landlords were likely to be among the biggest losers from any rise in CGT.

The OTS said the tax could be doubled, made simpler in its structure, and brought roughly in line with income tax.

“The disparity in rates between Capital Gains Tax and income tax can distort business and family decision-making and creates an incentive for taxpayers to arrange their affairs in ways that effectively re-characterise income as capital gains” the report claimed.

The OTS’s consultation – which received over 1,000 responses – revealed a range of areas in which Capital Gains Tax was apparently counter-intuitive and creates “odd incentives.” Some respondents argued that CGT is a barrier to economic growth, others that it was a barrier to a more equitable society.