Should Capital Gains Tax be aligned with Income Tax rates, as recommended in a report by academics at CenTax?

No.

Here are five reasons why.

1. The tax system should encourage individuals to take risks and invest, leading to long-term wealth creation. We already have a tax incentive that rewards individuals for investing in risky startups (Enterprise Investment Scheme). Starting a business is hugely difficult with around 60% start ups failing. The UK would massively disincentivise individuals from starting businesses if they knew that they would be taxed at income tax rates (40%/45%) on an eventual exit, instead of 10%/20% currently.
2. Unlike some jurisdictions (France, Germany, Australia etc) the UK has no ‘exit’ tax on capital gains. This means that taxpayers are free (arguably incentivised) to leave the UK and sell their UK assets, such as a UK company, when non-resident and pay no tax in the UK on the disposal. Raising Capital Gains Tax rates to Income Tax rates would mean that more entrepreneurs are incentivised to leave the UK before selling assets. 40% or 45% of zero is zero.
3. Capital Gains Tax effectively taxes inflation. This means people who sell assets at a ‘gain’ pay tax not only on the ‘real’ appreciation, but also the inflationary increase. Paying tax at 40% or 45% on inflationary increases in an asset value is unfair.
4. If CGT were raised to match Income Tax rates, UK would have one of the highest rates in the world, with only Denmark and Australia similar (although the Australian rate is in practice half the headline rate). This is not an entrepreneur friendly environment and is not growth friendly.
5. SMEs are the lifeblood of the UK economy, employing 61% of employees. Many founders are serial entrepreneurs, using cash from the exit of one SME to start the next. If 40%/45% of the exit proceeds were taken away in tax they would have less capital and incentive to start the next.