London, September 23, 2026 – A reported proposal ahead of the UK Budget could deliver a significant tax break for lower-income workers while imposing a steeper levy on investment gains. The plan, which has been circulated in policy circles, would increase the personal allowance by £3,000, providing a £600 annual saving for many basic-rate taxpayers. However, the same package could raise capital gains tax (CGT) to as much as 45%, a move that would substantially increase the tax burden on investors.
Currently, the personal allowance stands at £12,570, while most taxable investment gains are subject to rates of 18% or 24%. The proposal, which is not yet official policy, would align CGT rates with income tax bands, potentially creating a top rate of 45% for additional-rate taxpayers. This trade-off is a key consideration for investors and policymakers as the October 28 Budget approaches.
The proposal was reported by MoneyWeek, citing a Budget submission from entrepreneur Dale Vince, with modelling by the National Institute of Economic and Social Research (NIESR). The model estimates an annual cost of £20 billion to the Treasury, while providing a £600 benefit to the lowest-income fifth of households. HM Revenue & Customs' ready reckoner suggests that a £100 change in the personal allowance would cost £1.05 billion in 2027-28, but scaling this figure is unreliable due to behavioural responses and threshold interactions.
For investors, the impact could be severe. A £50,000 gain for a higher-rate taxpayer would currently incur £11,280 in tax at the 24% rate, but under the proposed 40% rate, the tax would rise to £18,800 – an increase of £7,520. For additional-rate taxpayers, the 45% rate would result in £21,150 in tax, an additional £9,870 compared to current rules, after accounting for the £3,000 annual exemption.
The proposal has sparked debate among financial advisers. Sarah Coles, head of personal finance at AJ Bell, advised against panic selling, recommending that investors focus on ISAs, pensions, and existing allowances. James Norton of Vanguard Europe echoed this sentiment, suggesting that investors should only bring forward already-planned disposals, not create new ones based on unconfirmed rumours. Julia Cox and Mary Perham of Charles Russell Speechlys warned that Budget-day implementation is possible, but selling into trust or repurchasing shares introduces additional costs such as stamp duty and anti-avoidance rules.
Capital gains tax receipts are notoriously sensitive to timing. The Office for Budget Responsibility (OBR) has noted that taxpayers may accelerate or delay sales, switch assets, or relocate to avoid higher taxes. In fact, the OBR estimated that behavioural responses erased about 60% of the projected 2024 CGT yield by 2029-30, a cautionary tale for revenue projections.
For the broader market, a higher CGT rate could reduce turnover in taxable portfolios, as investors may hold onto assets longer to defer tax liabilities. This could encourage greater allocations to tax-advantaged accounts like ISAs and pensions, though it would not change the underlying value of assets. The distributional impact is also a point of contention, with NIESR's model showing benefits for lower-income earners, while CGT affects a narrower, wealthier base.
Risks abound: the proposal may never make it into the final Budget, and early disposals could trigger unnecessary tax, fees, and lost market exposure. The proposal also lacks details on specific bands, effective dates, and inflation adjustments. Investors and advisers will be watching closely for the Budget announcement on October 28, when HM Treasury and the OBR will provide clarity on adopted rates, effective dates, and any inflation relief.
