Investors could face significantly higher tax bills as proposals to bring capital gains tax in line with income tax rates gather momentum in political circles.
The idea of equalising CGT with income tax has been discussed for years, with speculation intensifying before last year's Autumn Budget.
Now the debate has resurfaced with renewed vigour as it forms part of the Labour leadership contest.
Maike Currie, VP Personal Finance at PensionBee, warned that such a change "would represent a major shift in the UK's approach to investment, savings and wealth creation and could have serious unintended consequences for the country's already sluggish economic growth."
Under the proposed changes, profits from asset sales would be taxed at the same rates as wages, meaning investors could pay 20, 40 or 45 per cent depending on their total income and gains.
The proposal also targets arrangements that allow earnings to be structured as capital gains to reduce tax liability.
Wes Streeting, the former health secretary, has championed the policy as a "wealth tax that works" as part of his bid to lead the Labour Party.
He has argued the reform would create a fairer system, though he has indicated that entrepreneurs building businesses might retain access to lower rates given the risks they take.
Wes Streeting has argued the reform would create a fairer system
| WES STREETING - X / PAMs Currie cautioned that relying on elevated CGT rates to boost government revenue would prove counterproductive over time.
"Using higher CGT rates as a lever to raise more revenue for the Government is short-sighted, as such a move would work against the UK in the longer term, jeopardising investment at a time when the UK desperately needs capital flowing into the country, not out," she said.
"Risking a capital flight and a reduction in the tax base would be a major own-goal."
Imposing penalties on investors, landlords and small business owners who reinvest their profits could dampen economic activity and innovation
| GETTYShe emphasised that capital gains differ fundamentally from wages, often stemming from entrepreneurship, long-term investment, risk-taking and asset growth driven by inflation.
Imposing penalties on investors, landlords and small business owners who reinvest their profits could dampen economic activity and innovation, Ms Currie added.
Ms Currie also highlighted a broader crisis of confidence among savers and retirees, who feel the rules are constantly shifting.
Ms Currie also highlighted a broader crisis of confidence among savers and retirees, who feel the rules are constantly shifting
| GETTY"After repeated cuts to allowances, frozen inheritance tax thresholds and plans to bring pensions into IHT from April 2027, savers and retirees already feel the goalposts are constantly moving," she said.
She noted that many families hold their wealth in property, pensions and businesses rather than liquid assets.
"As leadership hopefuls compete to outbid each other with promises of 'wealth taxes that work', they should tread carefully to ensure the great wealth transfer does not slowly become wealth erosion," Ms Currie warned.