Rachel Reeves could saddle Britain with some of the highest capital gains tax (CGT) bills in Europe if she follows through with tipped Budget reforms.

Rumours swirled this month that Reeves could align capital gains with income tax, meaning rates could rise up to 45pc for the highest earners. Such a move would catapult the UK from 14th to first in the European rankings for CGT charges on non-property assets, overtaking Denmark at the top of the charts.

The Nordic country currently leads the way, charging up to 42pc on asset sales. It is followed by Norway (37.8pc), France and Finland (34pc), and Ireland (33pc).

However, this week the Treasury dismissed a story that suggested Labour had modelled raising the rate to 39pc. A Government source said the tax would not be this high, wiping out the possibility of CGT rates aligning with income taxes.

However, the source did not deny it could be increased to more than 30pc. Even at a rate of 30pc, the UK would have the seventh highest capital gains tax in Europe.

As it stands, higher-rate and additional taxpayers are charged 24pc on profits made from the sale of second properties and 20pc for other assets. Basic rate taxpayers pay 18pc and 10pc respectively.

Chris Etherington, of accountancy firm RSM, said: “Having one of the highest CGT rates internationally would clearly put the UK at a considerable disadvantage when trying to attract entrepreneurs to set up their businesses.

“Keeping hold of homegrown entrepreneurs could also prove more challenging if rates are too high, as a short trip across the Channel could provide business owners with a much more competitive tax environment.”

Comparing CGT country by country can be difficult due to each one’s different caveats and allowances, but according to the Tax Foundation, the average capital gains charge on listed shares in European countries is 17.9pc.

A number of countries including Luxembourg, Denmark and Hungary already charge CGT at the same level as income tax, while Belgium and Switzerland are CGT-free.

Outside Europe, the highest earners in Australia face a 45pc charge on gains, but they are given a 50pc discount on assets held for more than a year. Tax advisers have warned raising the rate in Britain would backfire as it would scare people away from investing, and hurt the country’s international allure.

Sarah Coles, of Hargreaves Lansdown, said: “The UK has an investment problem because people invest far less than they do elsewhere around the world.

“The tax system should be designed to encourage investment for the long term – a huge hike in capital gains tax would fly in the face of this.”

Landlords and investors are already scrambling to sell in anticipation of a CGT shake-up in Labour’s self-labelled “painful” Budget on October 30.

The looming threat of higher tax bills saw HM Revenue & Customs (HMRC) pocket a record £197m in August.

Tax advisers have reported a surge in inquiries from middle-class investors panicking about the risk of higher bills.
Darwin Friend, of the TaxPayers’ Alliance, said: “If Labour are serious about going for growth they need to make clear that wealth creators are not in the firing line.”

The Government could also cut the annual £3,000 tax-free allowance for investment profits. The allowance has already faced a series of drastic cuts in the past two years, with the Tories lowering it from £12,000.

A government spokesman said: “We do not comment on speculation around tax changes outside of fiscal events”.