Any rise in capital gains tax (CGT) at the budget on 28 October must be accompanied by “inflation relief” on the gains made, tax experts have said, as speculation grows that John Healey, the chancellor, will increase the main rates.

Speculation over a potential rise has gathered pace in recent weeks as Healey seeks to replenish the UK’s fiscal headroom, which has been partly eroded by a surge in bond yields.

Under the proposal, only profits made over the present level of price growth would be liable for CGT. A relief of this kind was abolished under Gordon Brown.

Experts said that netting off purely inflationary gains when taxing profits on the disposal of certain assets would strengthen investment incentives and encourage entrepreneurship. They said it could also add further complexity to the UK tax regime.

“[Inflation] relief should make the system fairer than it presently is,” Robert Salter, tax director at Blick Rothenberg, the accountancy firm, said.

Salter added that such a move would raise the workload for HM Revenue & Customs, as the authority would have to identify the real profits generated on all asset sales that are subject to CGT.

Elsa Littlewood, a tax partner at BDO, another accountancy firm, said: “Reintroducing an [inflation] allowance now would improve fairness but increase complexity. The argument for its reintroduction would be stronger if rates were significantly increased.”

Littlewood added: “Rather than reintroducing complexity, the chancellor needs to look for ways to simplify the tax system to reduce the regulatory burden on individuals and businesses.”

Tim Sarson, the head of tax policy at KPMG UK, pointed to a different approach. “An investment allowance is not the only option out there,” he said. “The government could alternatively look at tapering of the rate linked to length of ownership. That’s how the French system works, the idea being that it rewards long-term investment.”

The Centre for the Analysis of Taxation (CenTax), a think tank, has estimated that the government could raise nearly £20bn a year by the next decade by equalising CGT and income tax rates. The think tank set out a package of CGT reforms in a report published on 23 September, which also found that only one in ten of the UK’s highest earners pay close to the top rate of tax.

Healey recently noted that Britain had the lowest CGT rates of any G7 economy in Europe.

The Treasury’s own workings claim, however, that equalising the rates would decrease revenues, because fewer people would sell their assets in order to avoid tax charges.

The Office for Budget Responsibility, in its economic forecasts, tends to warn of the difficulty of predicting future CGT revenues. The tax is strongly correlated with changes in behaviour, which are also hard to anticipate.

A survey commissioned by S&W, the professional services group, found last month that six in 10 business owners would be discouraged from founding a new company if CGT was raised in the budget.

If Andy Burnham, the prime minister, and Healey do turn to CGT to help repair the public finances, it would be the second time in two years that the Labour government has done so.

In her first budget as chancellor in October 2024, Rachel Reeves lifted the lower rate to 18 per cent from 10 per cent and the higher rate to 24 per cent from 20 per cent. Those remain the rates paid by individuals, according to HMRC guidance.

The Treasury said: “As has always been the case, decisions on tax are a matter for the chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”

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