Capital gains tax takings reach record level

Capital gains tax receipts continue to reach record levels. With the reduction in the individual allowance yet to come, do tax advisors anticipate the governments CGT takings to skyrocket?

The UK government claimed a record £15.3 billion in capital gains tax (CGT) in the year to 31 October 2022, driven by the slash in the Business Asset Disposal Relief lifetime limit, and the rush of property sell offs.

Data obtained through FOI by private equity firm Growthdeck and provided to Spear’s shows that in the year to October 2022 the government increased its annual total CGT receipts by 27.5 per cent, up to £15.3 billion.

This is close to double the total taxes paid in the year to October 2018.

Part of this increase can be attributed to property sell-offs. As the pandemic and stamp duty holiday fuelled high levels of activity in the market, large numbers of buy-to-let investors sold off properties to capitalise on high property valuations.

In June 2020, CGT reportees gained £244 million from residential property disposals, paying £48 million in CGT. By June 2021, in the sell-off rush before the end of the first phase of the Stamp Duty holiday, they registered £1.3 billion in gains, paying £275 million in CGT.

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Another key factor in the drastic rise of total CGT receipts, explains Ian Zant-Boer, CEO of Growthdeck, in the slash to the lifetime allowance of Business Asset Disposal Relief (BADR) in March 2020, from £10 million to £1 million.

Data from the HMRC for the financial year ending March 2021 shows that just 8 per cent of the CGT total that year came from disposals that qualified for BADR, down from 28.4 per cent the year prior.

‘The UK is paying more CGT than ever. Unfortunately, entrepreneurs will have accounted for a significant proportion of the increase in those bills,’ Zant-Boer said.

‘It is argued that having low CGT bills on the sale of businesses by entrepreneurs rewards them for having taken a high degree of personal risk to benefit the economy by creating wealth and jobs.’

And with the individual CGT exemption allowance set to decrease from £12,300 to £6,000 in April 2023, and then again to £3,000 in April 2024, the CGT total takings is set to continue to increase.

This change will affect a huge number of people, with almost a quarter of million estimated additions almost doubling the current number required to report their capital gains. But it likely won’t have the financial impact that number suggests.

In the year end March 2021, 45 per cent of CGT came from those who made gains of £5 million or more, who make up less than 1 per cent of taxpayers. The new additions brought into the fold by the lowering of the individual exemption threshold, while large in number, will be those with the smallest tax bill.

'My clients will just accept the tax increase'

Indeed, says Lucy Woodward, a private client adviser at Saffery Champness, neither the changes to individual exemption threshold, or BADR, are changes she anticipates will cause significant behaviour change among her clients.

'My clients are dealing with such big transactions, that if they want to sell their business, they’ll just do it anyway, and just accept the tax increase,' she says. 'Capital Gains Tax is still very low, compared to the 30 per cent and 40 per cent it has been in the past, so they just accept it.’

The main policy Woodward is keeping an eye out for, is an increase in the rate of CGT, which was rumoured last year but never transpired.

‘If those rumours rise up again, or the government does announce a rate change, that would prompt changes in behaviour as people strategize to sell before the deadline,’ she says. ‘But I think those rumours have gone away for now.’

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