People living in Notting Hill, west London, received more in capital gains from 2015 to 2019 than the combined population of Liverpool, Manchester and Newcastle according to an analysis of capital gains tax.
Analysis of anonymised personal tax returns found that 97% of the population never receive any capital gain, and those that do are very likely to be among the very richest who benefit from the tax rate being lower than that earned on income from a salary. In fact, half of gains for “the entire country go to as many people as could fit in the Albert Hall”, researchers said.
A capital gain is the money received from selling an investment for more than the purchase price. The tax rate on capital gains varies between 10% and 28% depending on the taxpayer’s income level and the type of asset sold. But the tax paid is always lower than income tax rates for the same person, with reliefs in place that allow up to £10m to be received at a 10% tax rate even for the highest rate taxpayers.
Just 0.3% of people with income under £50,000 had taxable gains in an average year, compared with almost 40% of taxpayers with incomes over £5m receiving some gains.
Analysis of tax returns by researchers from the University of Warwick and the London School of Economics and Political Science (LSE) found that 25% of all the gains go to people living in London. A further 22.4% are received by people living in the south-east of the country. By contrast, taxpayers in Wales, the north east and Northern Ireland received just 2%, 1.5% and 1.3% of capital gains, respectively.
Within London, the gains are heavily concentrated among the richest areas. Five London constituencies – Kensington, the cities of London and Westminster, Chelsea and Fulham, Hampstead and Kilburn, and Richmond Park – each had more capital gains than both the north east and Northern Ireland.
Andrew Lonsdale, research officer at LSE’s International Inequalities Institute (III), said: “There are more capital gains in Kensington than the whole of Wales, and more in Hampstead and Kilburn than the north east of England. Continuing to tax these gains at a lower rate than earnings from work is the complete opposite of ‘levelling up’.”
Within Kensington, people living in a small collection of streets in Notting Hill that are home to just 6,400 people “had as much in capital gains in 2015-2019 as Liverpool, Manchester and Newcastle combined, highlighting the extent of hyper-local concentration within the capital”.
Ranking people by gains received, the top 50,000 gainers – who make up about 0.1% of UK adults – received 86.4% of gains, worth about £56bn in total. Each person received at least £143,000.
Arun Advani, associate professor at the University of Warwick’s Economics Department and CAGE Research Centre, said: “Capital gains are absurdly concentrated, with half the gains in the entire country going to as many people as could fit in the Albert Hall. Less than one in 30 people have any gains at all over the course of a decade.”
In the last Labour manifesto, the party proposed aligning capital gains rates with income tax rates. However, Rachel Reeves, the shadow chancellor, said in March 2023 that the party had no plans to increase capital gains tax.
“There are people who have built up their own businesses who maybe at retirement want to sell that business,” she said. “They may not have had huge income through their life if they’ve re-invested in their business, but this is their retirement pot of money. And we also have said we want Britain to be the best place to start and grow a business.”
Capital gains tax rules allowed the prime minister, Rishi Sunak, to pay an effective UK tax rate of 23% on £2.2m income last year. Keir Starmer, the Labour leader, paid £52,688 in capital gains tax on income of £275,739 from the sale of a field in December 2022.
