Top 1% of UK earners receive 17% of nation's income

Capital gains are made when an asset is sold such as a business or shares or dividends. Many people pay themselves this way rather than a salary which is taxed at a higher rate. Capital gains are currently ignored by official income statistics.

The UK capital gains tax rate is 20% and 45% for the highest rate of income tax.

For instance private equity partners take the bulk of their remuneration in the form of so-called “carried interest” on their investment portfolios of business because it means they pay a lower rate of tax.

In 2018, £55 billion of taxable capital gains were recorded. The majority of these gains were received by 9,000 individuals, who each made gains of £1 million or more.

Dr Andrew 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.”

The report noted that capital gains had fallen sharply during the financial crash of 2008-09 and were likely to follow the same pattern during the current crisis.

But it questioned whether capital gains should be taxed at a much lower rate than income given that the benefits went mainly to the rich.