Rachel Reeves warned by expert over ‘disaster’ plans to almost double one tax | Politics | News

A leading British tax expert has warned Rachel Reeves that reported plans to increase capital gains tax to 39% could be a “disaster”.

Reports emerged yesterday (FR) that the Chancellor is considering almost doubling capital gains tax in a bid to find extra pre-Budget cash to fund Labour’s manifesto commitments.

Leaked Treasury models appeared to show officials considering raising wealth tax to 33-39%, with panic growing in the department that Labour’s pledge not to increase VAT, income tax or working people’s National Insurance has got ahead of Ms plans. Reeves first fiscal report.

Amid claims by officials that Ms Reeves’ plans are in “total chaos”, reported plans to increase capital gains tax have been met with a reaction ranging from dismay to dismay.

Tax expert Dan Neidle has warned that if the policy is not implemented with appropriate mitigation measures in place, it could spell “disaster and the potential loss of large amounts of tax”.

Labor MP Neidle argued that a significant increase in CGT could raise additional amounts, but warned that this must be accompanied by a “generous investment allowance and base reforms to end tax avoidance”.

He also warned that “this too needs to happen overnight”, repeating previous warnings that the most important thing when raising CGT is “don’t tell anyone about it until it happens”.

Other voices were even more opposed to the planned tax raid, with Tory frontman Andrew Griffith warning it would lead to the UK losing a “generation of entrepreneurs”.

He told this newspaper: “If true, that would be 39 reasons not to start a business, invest in the future or take risks – economic growth depends on it all.”

“Britain would be missing out on a generation of entrepreneurs and that’s another bias where the Rachel Reeves numbers don’t add up.”

Meanwhile, free market think tank the Institute of Economic Affairs has pointed out that a CGT rate of 39% would mean the UK has “the second highest capital gains (shares) rate in Europe”.

Chief executive Tom Clougherty said: “This is simply too high – it would damage our competitiveness and growth prospects and would probably result in lower revenues than the Treasury expects.”

“There is merit in controlling the line between income and capital gains more closely, but actual investment gains should be taxed differently – otherwise you will destroy the incentive to save.”

The capital gains reports emerged shortly before it emerged that rumors of a raid on pension tax relief could cost high earners £1,800 a year.

Ms Reeves is set to reduce tax relief on workers’ pension contributions in her October 30 budget, something Keir Starmer has repeatedly refused to do at Prime Minister’s Questions.

Currently, employers pay National Insurance contributions of up to 13.8% on employees’ earnings, but remuneration transferred into a pension is tax-free.

Plans to apply this tax rate to employer pension contributions would raise billions for Ms Reeves, but it would also likely result in companies passing the costs on to workers.

Yesterday it was suggested that the typical high-income worker would lose £1,818 a year in pension contributions if an employer decided to pass on the costs.