Capital gains tax on residential property could rise from 24% to as high as 45% for additional-rate taxpayers if Labour's latest policy proposal moves forward. Sky News reports that ministers are examining a plan to equalise CGT with income tax rates, part of a wider tax reform package that could reshape returns for property investors.

The proposal remains early stage. A formal report is expected after May's local council elections. But the direction is clear: property sales could become significantly more costly.

What the proposal means

Current CGT rates sit at 18% for basic-rate taxpayers (HMRC) and 24% for those paying higher rate tax (HMRC). Income tax runs at 20%, 40%, and 45% across the same brackets. Aligning the two would lift CGT to match income tax. This potentially raises it to 45% for additional-rate taxpayers and to 40% for those in the higher bracket.

The annual CGT exempt allowance currently stands at £3,000 for 2025/26 (HMRC). The proposal does not specify whether this threshold would change.

Labour ministers are examining this plan alongside broader reforms. These include reducing income tax whilst funding the shift through elevated capital gains taxation, land taxes, and changes to council tax. CGT receipts totalled £13.6 billion in the 2024/25 tax year according to HM Revenue and Customs data.

Note: Capital gains tax is a UK-wide tax and is not devolved to the Scottish Parliament.

The working example

Here's what this means in practice. Suppose you sell a residential investment property and make a gain of £100,000. You are an additional-rate taxpayer.

Under today's rules: (£100,000 - £3,000) × 24% = £23,280 CGT liability.

If the proposal passes and CGT rises to 45%: (£100,000 - £3,000) × 45% = £43,650 CGT liability.

The difference is £20,370 more tax.

For higher-rate taxpayers, the impact is smaller. At 40%: (£100,000 - £3,000) × 40% = £38,800 liability. That's £15,520 more than today's £23,280.

These figures assume the allowance remains unchanged at £3,000. If that too is reduced as part of the broader reform, your actual liability could be higher still.

Timeline and uncertainty

The proposal is under consideration. It is not confirmed policy. Sky News reports that ministers are "examining" the plan, with a comprehensive report due after May's council elections.

This matters: proposed reforms often shift or fall away entirely during consultation. The 2024 autumn statement, for example, included changes to National Insurance that faced backlash and were later modified.

Changes to CGT would typically be announced in a Spring Statement or Autumn Statement. Implementation would either be immediate or from the next tax year (6 April). The effective date would affect whether sales should be timed before or after the change.

What this means for your planning

If you are considering selling a property within the next 12 months, the tax rate environment has moved into focus. Disposing of an asset now would lock in 24% CGT. Waiting could mean paying substantially more if the proposal passes.

Equally, this is speculative at present. No firm date or finalised rate has been announced. Rushing to sell in response to a proposal can backfire if the policy never materialises or changes shape during consultation.

The sensible move: review your investment plan with your accountant. If a sale was already in your thinking, discuss the tax timeline. If not, speak to your accountant about whether a rate change would materially affect your overall return and whether that should shift your exit strategy.