Capital gains is fast-becoming Britain’s most vicious tax

When it comes to finding new ways to milk investors this Government has shown limitless initiative

The Prime Minister Rishi Sunak and Chancellor Jeremy Hunt
Tax raids implemented under Rishi Sunak and Jeremy Hunt are squeezing British investors and savers Credit: Simon Walker / No 10 Downing Str

There truly is no escape from the creeping tax claim being made to our investments and savings. 

We are all paying more tax, whether it be on our incomes or through our council tax bills.

But it is now emerging that perhaps the most aggressive tax increase has been levied on property investors and landlords through the decimation of the capital gains allowance.

Chancellor Jeremy Hunt slashed back the capital gains allowance from £12,300 to £6,000 at the start of this tax year and it will shrink to £3,000 in April next year.

On the face of it, it’s a straight-up tax grab that will cost property investors thousands of pounds more when they sell a home.

However, it is much worse than that. It came at a time when property prices peaked and when the Government’s own policies are forcing landlords to sell up.

Investment firm Fidelity International this week reported that the tax generated from capital gains now amounts to more than 2.5 times the total raised by inheritance tax.

Twenty years ago inheritance tax raised more for the Treasury when death duties brought in £2.5bn and capital gains just £2.3bn.  Now the picture is completely different. Inheritance tax raised a not-insignificant £7bn last year, but capital gains brought in more than £18bn.

The number paying the tax has now doubled in a decade, but Mr Hunt’s attack on the tax-free allowance is predicted to see this take surge to more than £26bn by 2028, according to the Office for Budget Responsibility. 

Capital gains is due on property sales other than your primary residence and also on investments outside of tax-free wrappers such as Isas. Mr Hunt has also cut the dividends allowance from £2,000 to £1,000 and it will fall again to £500.

The increasing income tax burden, fuelled by frozen thresholds and wage inflation, is an assault on the earnings of all, but the capital gains raid is a particularly vicious attack on investors. 

The raid is all the more cynical given the Government’s apparent effort to drive landlords out of the housing market with increased regulation and the loss of more and more tax breaks on second homes.

However, the rise in capital gains tax further validates the need to put an end to death duties.

Telegraph Money is campaigning to abolish inheritance tax, it’s a cruel penalty levied at the worst time for bereaved families. But it is also inefficient and ineffective. The very wealthiest are able to pay top advisers to ensure they do not pay a penny, whilst unwitting families who have even modest estates are now caught out.

There can be no justification for keeping two major taxes on asset growth that now threaten just about any middle class family with even a modest accumulation of wealth.

Savers are no longer safe either. Rates are finally paying well again but the personal savings allowance has not budged since its introduction seven years ago meaning higher rate taxpayers earning interest of more than £500 face a bill on cash saved outside of an Isa.

And now we know that a shake-up of the Isa is in the works with the Treasury currently in discussions with stakeholders to help push savers towards investing. Influential policy think tanks have also raised concerns that the £20,000 annual savings limit is a generous tax break enjoyed by the very wealthy only.

For now, the only shelter from the Tory tax trap is an Isa, but how long will that last? You cannot put it past this Government to find another way to milk savers and investors.