Middle classes brace for Keir Starmer’s capital gains tax raid

Prime Minister prompts panic among landlords and investors as he waters down election promises

Middle-class families are preparing for a capital gains tax raid after Sir Keir Starmer warned of a “painful” Autumn Budget.
In a speech on Tuesday, the Prime Minister hinted at looming tax rises to plug a £22 billion hole in the public finances. He said that those with “the broadest shoulders should bear the heaviest burden”.
Wealth managers said the speech triggered phone calls from panicked clients, with middle-class savers rushing to sell shares and property to avoid paying higher rates if capital gains tax is increased.
There is mounting speculation that Labour could align capital gains tax with income tax, potentially increasing the higher rate from 20 per cent to 45 per cent.
Many landlords are expected to sell their properties imminently to avoid paying any increased levy, leading to an exodus from the buy-to-let sector.
Responding to questions from reporters, the Prime Minister repeated his election promise not to raise National Insurance, VAT or income tax. However, he refused to rule out increasing other taxes, fuelling fears that capital gains tax or inheritance tax could rise in the autumn.
Addressing 50 members of the public in the Downing Street rose garden, Sir Keir said: “There is a Budget coming in October and it’s going to be painful. We have no other choice, given the situation that we’re in. Those with the broadest shoulders should bear the heavier burden, and that’s why we’re cracking down on non-doms. Those who made the mess should have to do their bit to clean it up.”
The speech appeared to be a deliberate attempt to build expectations for a difficult Budget of spending cuts, tax rises and tightening of welfare reforms on Oct 30.
The Prime Minister was due to make his rose garden speech earlier in summer, building on Rachel Reeves’s warnings about the inheritance of Tory policy problems, but was delayed owing to this month’s riots.
Senior Conservatives accused Labour of planning to break election promises to voters. Rishi Sunak, the outgoing Tory leader, said: “Keir Starmer’s speech today was the clearest indication of what Labour has been planning to do all along – raise your taxes.”
Laura Trott, the shadow chief secretary to the Treasury, said: “Starmer’s speech has made it clear [that] ruinous tax rises, which he’s always planned, are on the way. Pensions, investments, homes – nothing will be safe. And, when introduced, he will have broken his election promise to the British people.
“Increasing tax is a political choice. One he has chosen to make so he can afford inflation busting payouts to his union paymasters. Hard-working people and entrepreneurs will now have to foot the bill. The British people will not forgive him.”
Financial planners said they had received calls and emails from clients who were worried about capital gains tax after watching Sir Keir’s speech.
Unlike the Tories, Labour did not commit to freezing capital gains tax before the election. Sir Keir has ruled out charging the levy on first homes, which are exempt under the current system, but has not commented on any other measures.
Tim Stovold, of accountancy firm Kingston Moore Smith, said: “This fear that the rate is going to go up has created this frenzy of people selling assets or giving assets down the generations to trigger capital gains tax now, at a rate that everybody’s fairly happy with: a 20 per cent rate of tax or lower, depending on what the asset is.”
Andy Butcher, of wealth manager Raymond James, said: “We’ve had lots of enquiries about how to minimise capital gains tax – and whether it’s worth realising gains now and paying capital gains tax ahead of the Budget.”
Stuart Adam, from the Institute for Fiscal Studies, added: “Labour has not said anything about CGT, but even speculation – anecdotally – is causing lots of people to sell assets at the moment, which is going to lead to a spike in receipts this year and a drop in receipts next year, even if there isn’t any reform.”
Other savers are giving cash to their children now to capitalise on the allowance for tax-free gifts of up to £3,000 a year, fearing that inheritance tax could also be increased at the budget.
Marco Malagoni, of investment manager Waverton, said the speech had “come up in conversation” with one client who was concerned that Labour could increase their inheritance tax bill. “It reminds me of the panic after [Jeremy] Corbyn. It’s not as dramatic, but clients are bracing themselves for change.”
He added that he knew of some “horror stories” of savers liquidating their pensions out of fear that Labour could make retirement pots subject to inheritance tax. “The uncertainty is causing people to act irrationally,” Mr Malagoni said.
Tim Page, of financial adviser PageRussell, also said clients were asking about using up their tax-free allowances ahead of Oct 30.
Landlords have warned that the threat of higher tax rates will force them to sell up ahead of the Budget. As a result, the private rental sector could lose 900,000 properties, according to research from Capital Economics.
James Wood, of the National Residential Landlords Association, said a capital gains tax raid would be “disastrous” for tenants across the UK. He added: “Whatever steps the Government takes to steady Britain’s economy, the Treasury must address the supply and demand crisis that continues to unfold across the market. At the very least, the Chancellor must take every precaution to avoid worsening this trend.
“To reverse this ongoing decrease in the supply of rented homes and to stop the hardship many tenants face, the Government must introduce pro-growth measures that will encourage landlords to stay in the market and provide desperately needed private rented accommodation to tenants.”
Sir Keir also appeared to water down a key tax pledge from the general election campaign, when he had repeatedly promised not to raise taxes on “working people”.
The Labour leader had defined the phrase in a campaign interview with LBC as people who work to “earn a living”, rely on public services and cannot “write a cheque when in trouble”. However, on Tuesday he laid out a much narrower definition of the promise, saying it actually referred to the pledge not to increase income tax, VAT or National Insurance.
The subtle change, which The Telegraph understands is being used by the Treasury for their Budget planning, potentially exposes many more people to any tax rises.
The Prime Minister was warned on Tuesday that NHS waiting lists would rise without a £3.2 billion cash injection. Matthew Taylor, the head of the NHS confederation of senior managers, told The Times: “We need money to help us reduce the risks of winter as soon as possible. If there isn’t going to be more money, the Government has got to be very clear about their expectations for the NHS as well as honest with patients that waiting times and performance will deteriorate.”
Madeline Grant
Gordon Rayner
Tom Clougherty, of the Institute of Economic Affairs think tank, said: “The Government is softening voters up for a tax-raising budget in October. It is also important to remember that the incidence of a tax doesn’t always fall on the person who pays it. Workers usually lose out when corporation tax is increased, for example. Significant tax increases that don’t affect ‘working people’ are a fantasy.”
Speaking to BBC News, Paul Johnson, of the Institute for Fiscal Studies, said direct taxes on people with average wages were “the lowest they’ve been in 50 years”. He continued: “Trying to significantly increase taxes without impacting that group of people will be very complex and potentially have some negative economic consequences.”
The Telegraph previously reported that an increase in capital gains tax under a Labour government would actually cause receipts to the Treasury to decline, instead of increasing revenue to help plug gaps in the Government’s finances.
HMRC data showed that a 10 percentage point increase in the higher rate could lead to a £170 million fall in tax take in 2024-25, followed by a £1.1 billion drop in 2025-26 and £2.1 billion in the year after. This is owing to the increased levy’s “behavioural impact” on taxpayers.
A spokesman for HM Treasury said: “Following the spending audit, the Chancellor has been clear that difficult decisions lie ahead on spending, welfare and tax to fix the foundations of our economy and address the £22 billion hole in the public finances left by the last government. Decisions on how to do that will be taken at the Budget in the round.”