The number of people paying capital gains tax jumped by 20% in the 2021 to 2022 tax year, according to the latest government data.
A total of 394,000 taxpayers paid a record levy of £16.7 billion, up 15% on the previous year. It was levied on £92.4 billion worth of gains.
The figures from HM Revenue & Customs showed most CGT comes from a small number of taxpayers who make the largest gains. In the 2021 to 2022 tax year, 45% of CGT came from those who made gains of £5 million or more, representing less than 1% of CGT taxpayers each year.
A total of 7% of CGT came from CGT disposals that qualified for Business Asset Disposal Relief, with 47,00 taxpayers claiming BADR on £12.6 billion of gains during the 2021-2022 tax year.
Meanwhile, the CGT on UK property was used by 139,000 taxpayers to report 151,000 disposals of residential property in the 2022-2023 tax year, amounting to a total liability of £1.8 billion. These figures are similar to the figures for 2021- 2022, which in turn showed a 56% and 60% increase in the number of disposals and total liability from the previous year. The increase reflects a wider increase in activity in the residential property market following the Covid-19 pandemic, HMRC said.
Rachael Griffin, tax and financial planning expert at Quilter, said: “The data around CGT when it comes to property sales is significant… much larger than in the 2020/21 tax year. This data suggests that there is an exodus of landlords from the property market as the tightening of tax laws on Buy to Lets make them a more unattractive investment.
“Coupled with this the continuing high property values but simultaneous threat of a property price crash is seemingly making more landlords opt to sell up. How this ultimately impacts the market for all prospective buyers and renters is yet to be seen. Currently property prices are slipping slowly but rent remains sky high as renters compete for a dwindling stock of rental properties.”
Experts also warned that the tax take from CGT is only likely to increase moving forward as a result of changes to the annual exemption allowance for CGT. The allowance halved from £12,300 in the 2022/23 tax year to £6,000 in April 2023 and is set to drop further to just £3,000 from April 2024.
Griffin said: “As we look to the future and the prospect of these figures growing even larger it becomes crucial that taxpayers utilise the tools available to them such as maximising ISA and pension allowances and using other products like single premium investment bonds. Similarly, there are lots of financial planning opportunities that can help reduce your CGT burden so seeing a professional financial adviser can help reduce your bill.”
Toby Tallon, tax partner at Evelyn Partners, echoed the sentiment.
“As things stand, we expect to see CGT receipts increase further given additional restrictions due to come into force. From speaking to our clients and research we conducted amongst business owners, we know that many are concerned that the tax regime could become even more restrictive and are accelerating the sale of assets before any potential tax changes, such as a possible increase in the rate of CGT. Anyone thinking of selling a property or business should remember it can be a lengthy process – particularly when it comes to disposing of large assets – and so planning ahead would be recommended.”
While no further changes to the rate of CGT have been planned, Tallon admitted the future looks uncertain.
He added: “For now, in the determination of key strategic priorities the Government is likely to accept that it cannot do everything, which could imply that major tax reforms, including to CGT, are off the agenda. An exercise in assessing the value for money of reliefs in the tax system is likely to guide any possible changes, including tinkering with CGT reliefs, particularly as only a third of the reliefs have been officially costed.”
To help mitigate tax liabilities, Tallon recommends investors maximise their ISA and pension contributions and consider tax-efficient investments, while couples and civil partners maximise the use of tax allowances by transferring assets between themselves free of CGT.
