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Raising CGT rates would not deter investment, says IPRR

October 23 2024

Increases to Capital Gains Tax (CGT) at the upcoming Budget would not deter investment into the country, according to the Institute for Public Policy Research (IPPR).

The think tank says that low CGT is not an effective way at encouraging entrepreneurship and investment.

Equalising CGT to income tax could help the Chancellor’s efforts to close the £22 billion hole in the public finances, with the IPPR saying doing so could raise up to £14 billion.

The IPPR said investors and entrepreneurs do not consider CGT when they set up a company as CGT only becomes relevant at the point of selling a business or assets, with only a small exception of millionaire investors taking this into account when becoming an investor.

The think tank claims low CGT rates are poor value for money, as they equally reward passive asset ownership and active entrepreneurship.

Finally, it says that unequal tax on income and capital gains encourages employees to act as ‘businesses’, creating labour market distortions.

The IPRR says: ‘Entrepreneurship and investment are vital to generating sustainable growth for the UK, but low capital gains tax is not an effective way at encouraging these activities. Instead, government and business must work together to make the most of the targeted support that is already on offer.

‘Closing the tax advantage on capital gains means that the system becomes more efficient whilst raising revenues to adequately fund the public services and investment that business across the country rely on.’

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