Capital Gains Tax: How It Works and Impact of Another Hike 2026

Capital gains tax (CGT) is a tax on the profit when you sell an asset that has increased in value. As the chancellor, John Healey, prepares to deliver a tough budget next month, speculation is mounting that CGT could be raised again. Here’s how it works, and the benefits and pitfalls of another hike.

What is Capital Gains Tax and How Does It Work?

When you sell an asset – whether it’s a share, a business, or a buy-to-let property – you pay capital gains on the uplift in its value since you bought it. It’s not quite that simple: you can reduce your CGT bill by deducting losses made on other investments, and the costs of investing in improving a property. But essentially, it’s a tax on the profits realised when an asset is sold.

The rate of CGT is now 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. There’s an even higher rate, of 32%, for City fund managers who take their earnings as a share of profits in a controversial system called “carried interest”. All those rates have gone up significantly since Labour came to power in 2024, as Rachel Reeves, the previous chancellor, chose to tax wealth more heavily – the basic rate was previously 10%, for example.

Current CGT Rates and Recent Changes

Recent data from HMRC showed the take from CGT was up 89% in 2024-25 as a result of these and other changes, which have also included cuts to the tax-free personal allowance for CGT, begun under the last Conservative government. The table below summarises the current rates and compares them to the previous rates before the 2024 changes.

The Pros and Cons of Raising CGT Further

Thinktanks and politicians across the left have argued that CGT should rise further to fund public services and reduce inequality. Proponents point out that the current rates are still lower than income tax rates for higher earners, and that a hike could raise billions. However, critics warn that raising CGT too high could discourage investment, slow economic growth, and lead to lower revenues if investors hold onto assets to avoid the tax.

Benefits of a CGT Hike

• Increased revenue for public services without raising income tax.
• Fairness: ensures wealthy individuals pay a larger share.
• Reduces inequality by taxing unearned income more heavily.

Pitfalls of a CGT Hike

• Locks in assets: investors may delay selling, reducing market liquidity.
• Discourages entrepreneurship and business investment.
• Revenue may fall if high rates lead to tax avoidance or lower activity.

Key Takeaways

• CGT is a tax on the profit from selling assets like shares, businesses, and property.
• Current rates are 18% for basic-rate taxpayers and 24% for higher-rate taxpayers.
• Rates have risen significantly since 2024, boosting HMRC’s take by 89%.
• Another hike could raise revenue but risks stifling investment and growth.

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