Wes Streeting proposes ‘wealth tax’ as part of leadership campaign

Former Health Secretary, Wes Streeting, has pledged to align capital gains tax (CGT) with income tax as part of his campaign to become Labour leader.

In an interview with the BBC, Streeting estimated that the ‘wealth tax’ could raise £12bn a year.

He called for a “wealth tax that works” and said he would aim to catalyse investment by offering reduced rates of CGT to ‘genuine’ entrepreneurs.

Under his proposals if he was to become Prime Minister, CGT would match income tax’s banding system, with rates of 20 per cent, 40 per cent, and 45 per cent depending on income.

Additionally, CGT bands would be calculated by adding up people’s income and profits from assets, according to the BBC.

Streeting also pledged to close ‘loopholes’ that enable people to disguise working income as capital gains, while lower rates of CGT would be offered to entrepreneurs who take risks by establishing companies.

The former Health Secretary resigned from Prime Minister, Kier Starmer’s, cabinet last week, although he is yet to launch a formal challenge against Starmer’s leadership.

Quilter tax and financial planning expert, Rachael Griffin, warned that proposals risked a ‘lock-in effect’, where investors delayed or avoided disposals altogether.

“Wes Streeting’s proposal, as part of his leadership campaign, to align CGT with income tax would represent a significant shift in how investment returns are treated, but how investors respond would ultimately determine whether it would raise the revenue expected,” she stated.

“Equalising rates at up to 45 per cent for additional rate taxpayers would markedly increase the cost of selling assets such as shares and second homes.

“At those levels, the incentive to realise gains weakens, raising the risk of a lock in effect where investors delay or avoid disposals altogether.

“It may also entrench a ‘hold until death’ mindset, as investors defer sales to benefit from the capital gains uplift on death, further undermining the tax take.”

Griffin noted that the recent increase in CGT take was likely heavily influenced by timing, as investors looked to bring forward disposals to crystallise gains under a changing regime.

“Once that passes, activity may slow as higher tax rates take hold and investors adjust behaviour,” she continued.

“That is the central risk with aligning CGT to income tax. Higher rates change behaviour. Investors may hold assets for longer, defer rebalancing decisions or rely more on tax wrappers.

“Over time, that can suppress transaction levels and make tax receipts more volatile rather than consistently higher.

There are wider consequences for the economy. CGT plays an important role in recycling capital, and if higher rates discourage disposals, capital becomes more static.

“In the housing market this could limit supply and reduce mobility among second home owners and landlords. Across investment markets, it can leave portfolios less aligned to changing conditions.

"From a financial planning perspective, the shift would introduce greater tax friction. The hurdle to sell and reinvest becomes materially higher, increasing the risk of inertia and leaving investors more exposed to concentration risk over time.”

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