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Wednesday, Oct 08, 2025

Rishi Sunak considering middle-class tax raid to pay for Covid debt

Rishi Sunak considering middle-class tax raid to pay for Covid debt

A Government report commissioned by Chancellor Rishi Sunak has called for a tax hike that would hit property owners, savers and investors to help pay for debt caused by the coronavirus pandemic.

The Office for Tax Simplification (OTS) report said that cutting exemptions and doubling rates on Capital Gains Tax could raise £14 billion for the Treasury.

Capital Gains Tax is a levy applied to the profits on the sale or disposal of shares and other property and an overhaul could particularly affect middle-income and high-income earners.

It comes as Whitehall seeks to find a way of paying back the money borrowed to support the economy through the Covid-19 crisis.

Both central and local Government have invested billions of pounds and in July, the national debt passed £2 trillion for the first time ever.

In September, Mr Sunak reassured recently-elected Tory MPs there would not be a ‘horror show of tax rises with no end in sight’.

But the OTS report has recommended the Government consider more closely aligning Capital Gains Tax rates with Income Tax rates.

Rates are currently set at 10% for basic-rate taxpayers and 20% for higher-rate taxpayers so if the recommendations are taken on, it could mean significant change.


The UK is facing a double-dip recession


Chancellor of the Exchequer Rishi Sunak in Downing Street this week


The report also urged the Government to consider reducing the £12,300 allowance with a range of between £2,000 and £4,000 being cited.

But the OTS report also acknowledged that cutting exemptions and doubling rates could equally have an effect on the way people approach their finances, stating: ‘The disparity in rates between Capital Gains Tax and Income Tax can distort business and family decision-making, and creates an incentive for taxpayers to arrange their affairs in ways that effectively re-characterise income as capital gains.’

Figures already show that around 50,000 people reported net gains close to the £12,300 threshold in 2017-18.

Only 0.5% of the population paid Capital Gains Tax in that financial year, with the 265,000 payers giving £8.3 billion to the Treasury, while 60%, or 31.2 million people, paid income tax, raising £180 billion.

Bill Dodwell, Tax Director at the OTS said: ‘If the government considers the simplification priority is to reduce distortions to behaviour, it should consider either more closely aligning Capital Gains Tax rates with Income Tax rates, or addressing boundary issues as between Capital Gains Tax and Income Tax.’

The review was commissioned by Mr Sunak in July, with this report into the principles of the tax being followed by another into the technical and administrative issues due early next year, but the Treasury is not obliged to follow the findings.

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