A fresh capital gains tax raid on Britain’s wealthiest households would ultimately lose the government money, according to new Conservative analysis of Treasury data.

Internal government modelling suggests the top rate of capital gains tax (CGT) is already too high, and raising it further would lead to lower tax receipts. Figures presented to the Labour government ahead of its first Autumn Budget in 2024 showed that the Treasury assumed it would collect less from investors, businesses and landlords through CGT as the tax burden rose.

Increases ultimately hurt the Exchequer because the high rate discourages people from selling assets such as businesses, shares and second homes in order to avoid the tax — a phenomenon known as the “lock-in effect”, where holders defer disposals to delay the tax bill. According to the Tory analysis, the tipping point comes when CGT is levied at 22 per cent.

Officials assume that the taxable pool of capital gains would decline by 3.6 per cent for every one per cent increase in the amount an investor can take home from assets, the Conservative analysis found.

“What this actually shows is what happens when you raise taxes and put the fear of God into investors,” shadow chancellor Mel Stride said on X.

“HMRC’s own estimates show increasing capital gains tax would lose the Treasury money, but Labour cabinet ministers and think tanks are still pushing for it. The only possible reason for another tax raid is an ideological war on wealth creation.”

Hiking rates

Current CGT rates stand at 18 per cent for basic-rate taxpayers and 24 per cent for higher and additional-rate taxpayers, after former chancellor Rachel Reeves raised the rate from 20 per cent.

Record capital gains tax receipts were recorded in the 2024/25 tax year, reaching £127bn — an 82 per cent increase on the previous year, according to figures from the Institute of Public Policy Research.

Reeves’ successor, John Healey, is nonetheless facing pressure to raise the CGT burden further. Proposals to lift CGT have been backed by Duchy of Lancaster Louise Haigh, a key ally of prime minister Andy Burnham.

Burnham has previously said the UK has “overtaxed labour and undertaxed wealth”, but he insisted this week that he would “definitely not” tax the wealthy out of the country.

The debate has fuelled concerns that the government is approaching ‘peak tax’, leaving little capacity to squeeze households and businesses further without the move backfiring and costing the Treasury money. It mirrors the long-running argument over the broader tax burden, with behavioural responses — from asset lock-in to relocation of wealth — repeatedly cited by economists as a constraint on how much revenue higher rates can actually deliver.

Simon French, chief economist at Panmure Liberum, said: “The dynamic, behavioural effects of policy are more significant with CGT than almost any other part of the tax system.

“The latest data pours cold water on the idea that there is a pot of recurring tax revenue to go for here.”