Westminster is increasingly tempted to treat Capital Gains Tax as an easy source of extra revenue.

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With the Treasury under pressure, raising the rate to bring it closer to income tax may look attractive on paper, but it could be a reckless move that leaves the Government collecting less tax, not more. Our analysis suggests that equalising Capital Gains Tax rates with income tax could reduce Exchequer revenues by approximately £7.8bn a year, leaving the Government in an even weaker fiscal position.

The reason is straightforward. Investors do not simply absorb higher tax bills without changing their behaviour. When the tax cost of selling an investment becomes substantially larger, some investors will hold an asset for longer, defer a disposal or decide against realising a gain altogether.........

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