Advice firms must address client’s capital gains tax liabilities, say tax specialists, as the latest figures from HM Revenue & Customs show the government raked in a record amount in CGT last year.
A total of £14.3 billion was raised on just 323,000 taxpayers in the 2020/21 tax year, making the average bill £44,272.
HM Revenue & Customs said the total CGT liability increased by 42% from the previous year, while the amount of gains and number of taxpayers increased by 19% and 20% respectively.
A number of factors have driven the increase, including concern that CGT rates will be brought in line with income tax rates, the tax freeze introduced by Rishi Sunak at the end of 2021 which saw rates frozen at £12,300 until 2026 and the reduction in lifetime limit for Business Asset Disposal from £10 million to £1 million.
Shaun Moore, tax and financial planning expert at Quilter, said advice firms can expect this tax to come under government scrutiny going forward.
Moore said: “Despite the challenging macroeconomic backdrop, asset prices have still risen since this data was collected and as such this tax take is unlikely to stay a record for long. Inheritance tax has been getting more attention than CGT in the recent Conservative leadership contest, but the tax raised from CGT dwarfs it in comparison. While tax rises do seem off the cards for now, it would not be a surprise to see CGT targeted if the next Prime Minister and Chancellor believe they need to raise tax revenues without impacting the majority of the population.”
Andrew Tully, technical director at Canada Life, commented: “CGT is clearly becoming a very valuable tax for HMRC. CGT receipts are growing rapidly from a relatively modest £3.8bn in 2012/13 to the current £14.3 bn which means the Government’s income has more than tripled in 10 years.
“A fair proportion of this marked upturn in receipts can be explained by the increase in rate for gains on disposals of property to 18% and 28%, together with the introduction of CGT for offshore trusts and non UK resident individuals on the disposal of interests in UK land and property with effect from 6 April 2019.
“With the £12,300 annual CGT exemption frozen until 2026 and inflationary increases in the value of assets, the amount raised in CGT is likely to continue increasing.”
To help clients, Tully said there is a “considerable amount” of planning which can reduce CGT bills, including holding assets within tax-efficient wrappers such as pensions and ISAs, as well as utilising investment bonds where full advantage has been taken of other investment wrappers. Clients could also consider transferring assets into joint names if married or in a civil partnership, or spreading disposals over different tax years.
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