Could Capital Gains Tax Rise to Match Income Tax Rates?

With the Autumn Budget planned for 28th October 2026, speculation is building around potential changes to Capital Gains Tax (CGT). Recent government borrowing figures have added to the wider fiscal pressure ahead of the Budget: the UK borrowed £18.3 billion in August 2026, £3.5 billion more than the Office for Budget Responsibility (OBR) had forecast, while borrowing for the financial year to August was £77.3 billion, £8.1 billion above the OBR forecast.

One of the more significant possibilities being discussed is whether CGT rates could, at some point, be brought closer to Income Tax rates. With borrowing running ahead of forecast, changes to CGT could therefore be viewed as one potential way for the Government to raise additional revenue and help narrow the gap in the public finances.

No such change has been announced and, for now, this remains speculation. Nevertheless, for business owners and individuals already considering a significant disposal, it is worth understanding what a change in rates could mean.

Planning for large legislative change is important.

Understanding potential future Capital Gains changes will help you develop a plan that works for you and your finances.

What are the current Capital Gains Tax rates?

For the 2026/27 tax year, individuals generally pay CGT at:

• 18% where gains fall within the unused basic rate band; and

• 24% on gains above it.

Individuals also have an annual exempt amount of £3,000.

For qualifying business disposals, Business Asset Disposal Relief (BADR) can reduce the CGT rate to 18%, subject to the relevant conditions and the £1 million lifetime limit.

There is therefore still a significant difference between the rates applying to capital gains and those applying to income.

What could alignment with Income Tax mean?

The main Income Tax rates in England, Wales and Northern Ireland are currently 20%, 40% and 45%, depending on an individual's taxable income.

If CGT rates were aligned more closely with Income Tax, the tax cost of a substantial disposal could therefore increase considerably.

For example, consider a taxable capital gain of £500,000 that does not qualify for a specific relief.

If the whole gain were taxed at:

• 24%, the CGT would be £120,000;

• 40%, the tax would be £200,000; or

• 45%, the tax would be £225,000.

This is deliberately a simplified illustration rather than a calculation of an individual's actual liability, but it demonstrates the potential significance of any substantial increase in CGT rates.

A complex change, with many parts to consider.

Some argue that materially higher CGT rates could discourage investment and entrepreneurship. Tax is only one reason why asset disposal might be considered.

Why is CGT reform being discussed?

The difference between the taxation of income and capital has been debated for many years.

Supporters of closer alignment argue that there is limited justification for some capital returns being taxed at substantially lower rates than income from employment or trading.

Others argue that materially higher CGT rates could discourage investment and entrepreneurship, encourage owners to retain assets rather than dispose of them, and potentially reduce the UK's attractiveness to investors.

CGT has already undergone significant changes in recent years. The main rates increased to 18% and 24% in October 2024, while the rate applying to gains qualifying for BADR increased to 14% from April 2025 and to 18% from April 2026.

Whether further reform will follow remains to be seen.

Should you sell assets before the Budget?

Speculation about higher tax rates inevitably raises the question of whether disposals should be brought forward.

However, significant commercial or investment decisions should not be made solely on the basis of speculation.

At the time of writing, there has been no confirmation that CGT will be aligned with Income Tax rates.

Even if changes are announced, important questions remain. We do not know what any new rates might be, which disposals or taxpayers could be affected, whether existing reliefs would change, or when new rules might take effect.

Tax is therefore only one factor to consider alongside the wider commercial and personal reasons for a disposal.

What could this mean for business owners?

Business owners contemplating a sale should pay particular attention to any future CGT announcements.

Shareholders may currently be able to claim BADR on qualifying gains, with gains outside the relief generally subject to the normal CGT rates.

For someone considering the sale of a business in the short to medium term, changes to either the headline CGT rates or the availability and structure of BADR could materially affect the net proceeds they ultimately retain.

That does not necessarily mean accelerating a transaction. But it does make understanding the current tax position increasingly important.

Planning ahead of the Autumn Budget

There is an important distinction between acting on speculation and being prepared for change.

Individuals already considering the sale of a business, investment property, shares or another substantial asset may benefit from establishing their likely CGT exposure under the rules as they currently stand.

That provides a useful baseline against which any Budget announcements can be assessed, and allows decisions to be made based on the facts once they are known.

How Shaw & Co Can Help

At Shaw & Co, we can review proposed disposals and calculate the potential Capital Gains Tax liability under the current rules.

We can also consider whether relevant reliefs may be available and assess the wider tax consequences of a proposed transaction.

If you are considering selling a business, property, shares or another substantial asset, speak to Shaw & Co before proceeding. Understanding your current position now can put you in a better position to respond if the tax rules change.

Contact Shaw & Co today on 01603 975976 to find out how we can help you.

Important: This article reflects the tax rules and publicly available information at the time of writing. Any potential changes to Capital Gains Tax discussed above are speculative unless and until formally announced by the Government. This article is for general information only and does not constitute tax advice.