Streeting's CGT plan could freeze Britain's housing market and lose tax revenue

Wes Streeting made his pitch to be chancellor sound straightforward. Aligning capital gains tax (CGT) with income tax - 20%, 40% and 45% depending on the taxpayer's income band - would raise £12bn a year, make the system fairer, and end what he called the effective penalisation of work over wealth. "A pound made from simply owning assets should not be taxed less than a pound made from a hard day's work," he told the BBC in May.

But new analysis from investment platform IG, published Monday by the Times and based on HM Revenue & Customs' own published behavioural assumptions, shows how flawed the wannabe Chancellor’s theory could be. Rather than raising £12bn, the proposal would cost the Treasury nearly £8bn a year - not because the maths is wrong, but because of something economists call the lock-in effect. When selling becomes expensive enough, people simply stop selling.

For mortgage brokers, that distinction matters enormously. A tax designed to extract more from asset owners could, in practice, trigger the very market paralysis it is supposed to be immune to - and evidence from the other side of the world suggests the consequences can arrive faster, and more severely, than anyone in Westminster appears to anticipate.

The numbers the Treasury won't like

IG's analysis breaks the proposal down by taxpayer band. Increasing CGT from 20% to 45% for additional rate payers - those earning above £125,140 - would cost the exchequer £4.6bn a year in foregone revenue. Raising it from 20% to 40% for higher rate payers would cost a further £3.2bn. Only the increase for basic rate payers, from 18% to 20%, would generate a net gain: approximately £10m a year.

The aggregate, on IG's numbers: a £7.8bn hole in the public finances. Michael Healy of IG said the analysis suggested that aligning CGT with income tax "would not only make investing less attractive but would also prove fiscally counterproductive." The Office for Budget Responsibility has already signalled caution: its own modelling acknowledges that costing CGT proposals is "highly uncertain because of the unpredictable behavioural response," and accountancy firm RSM has separately highlighted how raising CGT could ultimately lose money.

This is not a theoretical concern. When Rachel Reeves raised non-property CGT rates in her 2024 Autumn Budget - a comparatively modest move, lifting the basic rate from 10% to 18% and the higher rate from 20% to 24% - CGT revenue for 2024-25 came in at £13.6bn, down from £14.9bn the year before, even as the OBR had expected receipts to climb. The OBR now forecasts CGT receipts of £25.5bn by 2029-30, a figure it has already revised down by £5.5bn from its October 2024 projection. The Treasury's own behavioural models, in other words, have already been proven correct once. Streeting's proposal would apply the same mechanism at far greater intensity.

The property dimension: where brokers feel it

Streeting's CGT plan does not formally apply to a seller's primary residence, which remains exempt. But the second homes, buy-to-let portfolios, and investment properties that sit at the heart of Britain's private rented sector would face a dramatic increase in disposal costs. A higher rate landlord selling a property with a £200,000 gain would currently pay £48,000 in CGT (at 24%). Under Streeting's proposal, the same transaction would cost £80,000 - a 67% increase in the tax charge.

At rates like those, the rational response is not to sell. It is to hold. And a market in which motivated sellers become reluctant holders is one in which transaction volumes fall, chains collapse, and the pipeline of properties that mortgage brokers depend on dries up.

This is not a new worry. As Mortgage Introducer has previously reported, economic consultancy Capital Economics warned before the 2024 Budget that if CGT were fully aligned with income tax rates of 40-45%, landlords could sell off around 790,000 properties, creating a shortfall of 910,000 rental homes over the next decade. Reeves ultimately left residential property CGT rates unchanged; Streeting's proposal would revisit precisely that territory.

The irony is that the property market has already been showing the symptoms. A piece published on Mortgage Introducer in autumn 2024 noted that 32% of properties then listed for sale were estimated by Zoopla to be chain-free, likely representing landlords rushing to exit before an anticipated tax change. That rush temporarily boosted supply and CGT receipts alike - but the effect was front-loaded. Once the sales were made, the pipeline depleted. A permanent rate alignment at income tax levels would remove that pipeline entirely, leaving brokers with fewer transactions to facilitate, not more.

Quilter tax and financial planning expert Rachael Griffin put it plainly when the proposal was first floated: "Equalising rates at up to 45% for additional rate taxpayers would markedly increase the cost of selling assets such as shares and second homes. At those levels, the incentive to realise gains weakens, raising the risk of a lock-in effect where investors delay or avoid disposals altogether. In the housing market this could limit supply and reduce mobility among second home owners and landlords."

The Australian warning: when sentiment moves faster than legislation

The most vivid recent evidence for what a CGT overhaul can do to property market sentiment comes not from Britain but from Australia - and the parallels are uncomfortably close.

In May 2026, the Australian Labor government announced in its federal budget that the existing 50% CGT discount would be replaced from July 2027 with an inflation-linked calculation and a new 30% minimum tax on capital gains, while also abolishing negative gearing on established residential properties for new investors. The reforms are less radical than Streeting's proposal - Australia's changes do not fully align CGT with income tax rates, and they come with transitional protections for existing investors - but market reaction was immediate and extreme.

Within a month of the announcement, weekend auction clearance rates nationally had fallen below 50% - the lowest since the Covid pandemic, according to property research firm Cotality. In Brisbane, Ray White agent Avi Khan told Reuters that viewer numbers had halved, bidder numbers had halved, and clearance rates in his market had dropped to between 30% and 35%. SQM Research managing director Louis Christopher said the downturn was "being consolidated" into an extended decline, predicting Sydney prices could fall by as much as 9% in 2026 and Melbourne by up to 7%. Commonwealth Bank's economic team modelled a scenario in which house prices finish up around 5.5% below their baseline level - but acknowledged "there is also a risk that house prices respond more sharply in the short term due to shifts in sentiment."

Sentiment, not legislation, moved first. The reforms do not formally take effect until 2027. But the announcement alone was sufficient to reprice the market.

Australia's CGT reform is, by any measure, less aggressive than the proposal Streeting is putting forward. Britain's existing CGT exemption allowance has already been cut from £12,300 in 2022-23 to £3,000 today, meaning far more homeowners and investors are now in scope for the tax than were when it was last debated seriously. A move to full income tax alignment from that already-compressed base would represent one of the most significant single changes to property taxation in British history.

The political context: one way or another, this is coming

Streeting has now backed Andy Burnham's candidacy for Labour leader rather than standing himself - a decision that, as Mortgage Introducer reported last week, was welcomed by markets as likely to produce a smoother transition than a contested leadership race. But the CGT question does not disappear with Streeting's withdrawal from the race.

Burnham has not backed full CGT-income tax alignment outright, but has signalled openness to revisiting the rates. Former prime minister Tony Blair's recent essay on Labour's governing priorities noted - pointedly - that the idea of aligning CGT and income tax "should not be discarded out of hand." As Mortgage Introducer has noted, Knight Frank's head of UK residential research Tom Bill warned in late May that whichever direction Labour moves politically, "it's difficult to see an outcome where the government doesn't move to the left" - and every leadership candidate is drawing from the same toolkit of asset and property taxation.

The fiscal logic is hard to escape. Public sector borrowing hit £23.3bn in May 2026, approximately 30% above the prior year and £5.6bn above the OBR's forecast, according to ONS figures. Government debt interest alone reached £11.7bn in May - the highest for any May on record. Any incoming chancellor faces the same constraints Reeves faced, and the same temptation to reach for CGT. The OBR, in its Spring 2026 outlook, projected capital taxes as a share of GDP will rise from 1.4% in 2024-25 to 2.3% by 2030-31: a 64% increase, the largest projected rise of any tax category.

The question for mortgage brokers is not really whether CGT will rise. The trajectory on that is clear. The question is by how much, and how quickly the housing market reprices in anticipation - as Australia has just demonstrated it will.

What brokers should be doing now

The most immediate practical implication does not require any new legislation to arrive. The prospect of significantly higher CGT rates - even if ultimately softer than full income tax alignment - is already influencing client behaviour. Mortgage Introducer previously reported that demand for CGT advice among financial advisers had already doubled as the shrinking annual allowance brought more clients into scope.

For brokers with buy-to-let clients, second homeowners, or investors sitting on significant unrealised gains, the conversation about whether to sell before any future change takes effect is already live. That conversation is time-sensitive: the Australian experience suggests markets can move sharply on announcement, not on implementation.

The counter-argument - that a paralysed market is a market in which fewer transactions happen and therefore fewer mortgages are written - is equally relevant. A CGT lock-in effect reduces not just sellers but, by compressing supply, the buyers those sellers would have released liquidity for. The chains that break down, the first-time buyers who cannot find a property to step into, the upsizers who cannot find a willing vendor: all of these flow from the same mechanism the Treasury's own modelling has already acknowledged.

Around 1.8 million fixed-rate mortgages expire in 2026, many at historically low rates. That refinancing pipeline is the near-term opportunity the market can act on regardless of political outcomes. The CGT question is the medium-term risk it needs to be pricing in now.

Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.