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Top 1% receive a sixth of the nation’s income (pre-crisis) due to hidden rise of capital gains

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Top 1% receive a sixth of the nation’s income (pre-crisis) due to hidden rise of capital gains

The top 0.1%'s income share is 50% bigger than previously thought

The Top 1% received a far greater, and faster growing, share of the nation’s income pre-crisis than previously thought, if capital gains are included in official statistics, according to major new research published today (Thursday).

The research – a collaboration between CAGE, the Resolution Foundation and LSE – uses confidential tax return data to build a fuller picture of incomes across the UK, specifically by including taxable capital gains.

The report Who gains?Link opens in a new window notes that taxable capital gains are a major source of income in the UK, but are excluded from official income statistics. In 2017-18, £55 billion of taxable capital gains were recorded – more than double the amount recorded just five years earlier (£24bn in 2012-13).

The value of capital gains are not only large, but also concentrated among the very richest individuals. The majority of the UK’s taxable capital gains (£34bn) in 2017-18 were accrued by just 9,000 individuals, who each made gains of £1 million or more.

The report notes that despite being ignored in official income measures these gains are often related to people’s work, and so have more in common with employment earnings than passive investment returns. They include the £24 billion of gains eligible for Entrepreneurs’ Relief and £2 billion of ‘carried interest’ for fund managers.

Including these taxable capital gains into official income statistics significantly changes the distribution of income across the country, says the report, and our knowledge of how rich the ‘super rich’ really are.

It finds that the income share of the top 1% in 2017-18 was 16.8% once taxable capital gains are accounted for, rather than 13.8% as previously thought – meaning a sixth of all taxable income is accrued by just 1% of adults. The income share of the top 0.1% is also revised up by 50% to 8.1%, from 5.4%.

The inclusion of capital gains also changes the picture on how these income shares have changed over time, says the report. It finds that the income share of the top 1% has grown by 3.1 percentage points since comparable data began in 1996-97 – twice as fast as previously thought.

The report notes however that just as the value of capital gains fell sharply during the last recession, it is likely to have fallen sharply during the current crisis.

The value of capital gains has been driven by both the economic cycle and shifting tax incentives, says the report. It cites the far lower tax rates of for capital gains (which range from 10 per cent for Entrepreneurs Relief to 28 per cent for the main rate) compared to income tax rates, which rise to 45 per cent for the very top earners.

The report authors say that getting a more complete picture of the scale and distribution of income across the UK is vital if policy makers are to make informed decisions about living standards and tax policy. Official income data should therefore start to include taxable capital gains, as well as other major sources of incomes, such as the £25bn a year pension lump sums, that are also excluded.

And as the Government starts to think about Britain’s post-pandemic future, the report raises questions about whether the lower tax rates for capital gains over other income – which overwhelmingly benefit super rich households – can continue to be justified in a country that will need to raise more revenue.

Adam Corlett, Senior Economist at the Resolution Foundation, said:

“Capital gains are now a major source of income in Britain, particularly for a small number of high income individuals. But until now they have been excluded from official statistics, distorting our understanding of how income is distributed across society, and how this has changed.

“We now know that the Top 1 per cent are even richer than we previously thought – and account for £1 of every £6 of taxable income received, while the income share of the top 0.1 per cent has actually grown 50 per cent faster than official figures suggest. That scale of inequality should be addressed in post-pandemic Britain.”

Dr Arun Advani, Assistant Professor at the University of Warwick, said:

“Official statistics on the impact of austerity suggest that everyone was ‘in the same boat.’ But our report reveals this is simply not the case. When you take into account income from capital gains – the profits received on the sale of assets, including business shares – the top one per cent has in fact been doing rather well and inequality has been rising.

“While the share of all income going to the top 1 per cent has remained around 13 per cent since 1997, once gains are included it rises to 17 per cent, with the largest growth towards the very top.”

Dr Andy Summers, Assistant Professor at the LSE, said: 

“Capital gains are taxed at much lower rates than regular income, but the legal line between these is very blurred. This means business managers have a big tax incentive to take their rewards as gains instead of salary or dividends. When we look at the types of gain going to people at the very top, that’s exactly what we find. A lot of capital gains are, in fact, just repackaged income going to the already-rich.”


Corlett, A, Advani, A., and Summers, A. (2020), Who gains?; The importance of accounting for capital gains, Resolution Foundation

Advani, A., and Summers, A. (2020), Capital Gains and UK Inequality, CAGE working paper (no.465)

Advani, A., and Summers, A. (2020), Capital Gains and UK Inequality: New evidence from tax microdata, CAGE Policy Briefing (no.19)

Notes to Editors

The report is a collaboration between Resolution Foundation, the London School of Economics and Political Science, and the Centre for Competitive Advantage in the Global Economy (CAGE) at the University of Warwick.