Rachel Reeves has been warned that raising capital gains tax again could backfire, with experts saying it might actually cut the amount of money the government collects and slow down economic growth.
The Chancellor raised CGT rates in the previous autumn's budget, with the basic rate climbing from 10 per cent to 18 per cent and the upper rate rising from 20 per cent to 24 per cent.
Industry specialists have expressed concern that further rate increases might prompt investors to retain their assets for extended periods rather than selling them.
This behavioural shift could leave Treasury receipts in a vulnerable state whilst simultaneously impeding investment transactions across the market.
Chris Etherington, a private client partner at wealth management firm RSM, cautioned that significant modifications to CGT could accelerate the departure of business proprietors to other countries and result in declining tax receipts.
He described the potential alignment of capital gains rates with income tax as a "back door wealth tax".
"Any additional capital gains tax receipts will probably come with a health warning that they may not actually reflect the reality in due course," Mr Etherington stated.
"You can quite easily end up shooting yourself in the foot financially because you may think that increasing rates means revenues will go up. Actually, quite often, the opposite can be true."
Leading economic research organisations have proposed comprehensive reforms to the capital gains tax system, despite resistance from the financial services sector.
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Organisations have proposed comprehensive reforms to the capital gains tax system
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The Institute for Fiscal Studies, Institute for Government and Resolution Foundation have recommended that CGT rates should match income tax levels.
IFS economists have suggested that "substantially higher capital gain tax rates" could be implemented alongside structural changes to the tax framework.
These modifications would include more generous allowances for investment expenses at the point of acquisition and exemptions for returns generated through interest rate movements.
Rachel Reeves has outlined major changes to capital gains tax in the previous budget
| PA MediaFinancial advisers at RSM and Quilter have pushed back against these proposals, arguing that increased rates could discourage asset sales and create bottlenecks in investment markets.
The Institute of Economic Affairs has highlighted that CGT receipts fell by 18 per cent in July compared with the previous year, despite the recent rate increases.
Tom Clougherty, the IEA's executive director, argued that capital gains taxes create "strong behavioural effects" that distort economic decision-making.
The Adam Smith Institute explained Britain has already crossed beyond the optimal point on the Laffer Curve, where higher tax rates generate lower revenues
| GETTY"When it's an investment made from income that's already been taxed from earnings, you're creating double taxation and a bias in the tax system against saving and investment," Mr Clougherty explained.
"That's bad for capital accumulation, and that's bad for growth, and that's the last thing that we need at the moment."
The Adam Smith Institute has gone further, asserting that Britain has already crossed beyond the optimal point on the Laffer Curve, where higher tax rates generate lower revenues.