Property investors could face a sharp increase in tax bills under proposals to raise capital gains tax (CGT) to as much as 45%.

But a tax specialist has warned that such a move could change investor behaviour. It could also fail to raise the revenues expected.

The government is reportedly considering proposals to align CGT more closely with income tax ahead of next month’s Budget. Reports suggest rates could rise to as much as 45%.

Labour donor and Ecotricity founder Dale Vince put forward the proposal.

It suggests using additional CGT receipts to raise the income tax personal allowance from £12,570 to £15,570.

The submission estimates that aligning CGT with income tax could generate around £14bn. However, the government has not announced a decision.

Any substantial increase would have implications for landlords and other property investors considering disposals.

Individuals currently pay CGT at 18% or 24%. The rate depends on their taxable income and gains.

‘Capital gains are not an easy source of revenue’

Jessica Partridge, partner and head of tax and trusts at Mayo Wynne Baxter, warned against assuming higher rates would automatically raise substantially more money.

She said: “Aligning capital gains tax with income tax would amount to a fundamental change in the UK’s approach to taxing investment and wealth creation.

“While supporters argue it would create a fairer system, the practical effect would be felt most keenly by investors, entrepreneurs and business owners.”

Partridge said higher rates could influence when investors choose to sell assets.

She continued: “There is a legitimate debate about whether different forms of income should attract significantly different tax rates.

“However, policymakers should be wary of viewing capital gains as an easy source of revenue.

“Capital is highly mobile, and the evidence suggests taxpayers often change their behaviour when rates increase.”

She said investors could delay disposals, retain assets for longer or restructure their affairs to reduce their tax exposure.

For the property market, a sharp increase in CGT could therefore affect the number and timing of investment property sales.

Partridge added: “The proposal may appear attractive if the proceeds are used to raise the personal allowance and support lower earners.

“But the success of that approach depends on the revenues materialising as expected.

“History shows that higher capital gains tax rates do not always translate into proportionately higher tax receipts.”

She said any reform would need to balance raising revenue with maintaining incentives for investment and business creation.