'Strong case for capital gains tax reform', says IFS

08 Oct 2024

The Institute for Fiscal Studies (IFS) has stated that there is a 'strong case' for reform of capital gains tax (CGT).

The IFS said that CGT needs 'serious reform', not just more tweaks. It also stated that there are steps that the government should take to make the tax 'fairer and less harmful' to economic growth and well-being.

Data showed that whilst CGT is paid by around 350,000 people each year, a significant amount of revenue comes from just 12,000 people, who have average gains of £4 million.

The IFS said that CGT rates vary significantly across assets and are almost always lower than tax rates on income. According to the IFS, these rates are unfair and create 'undesirable distortions'.

It has called for a reformed tax base, which would ultimately align tax rates across all forms of gains and income.

Helen Miller, Deputy Director at the IFS, said: 'CGT is a small but important tax. Its design is flawed and this matters for both the efficiency and fairness of the tax system.

'The new Chancellor should use her first Budget to create a CGT that is fairer and more growth-friendly. The only way to do this is to reform the tax base alongside increasing tax rates.'