Fiscal drag means record number of people now pay CGT

HMRC netted a record Captial Gains Tax (CGT) take in 2021/22 tax year. A total of £16.7 billion was paid in CGT, with the number of taxpayers growing 20% to almost 400,000. The increase is partly down to landlords exiting the market. The CGT allowance is set to be slashed from £12,300 last year, down to just £3,000 by 2024/25. Commentators observed that taxpayers are forking out record amounts of CGT, according to latest figures from HMRC. The number of people paying capital gains tax has more than doubled in the last decade, and is set to explode in coming years as the capital gains tax allowance is slashed from £12,300 to £3,000. 

CGT has often been characterised as a rich person’s tax, with some justification seeing as you used to be able to make £12,300 of gains each year before the taxman asked for any dues. However now the allowance is being cut to £3,000, the net is going to be cast a lot wider, and more small shareholders are going to find themselves trapped in it. The easiest way to avoid paying capital gains tax on your shareholdings is to hold them in an ISA, though clearly this isn’t possible if the asset you’re investing in is a property, on which you will also face an extra 8% capital gains tax surcharge on any profits you do make. Figures from HM Revenue & Customs showed a 15 per cent year-on-year increase in the amount of CGT liabilities due to the Treasury. The number of people who owed the tax — which is levied on the financial gain made when an asset is sold — also hit an all-time high of 394,000 in the year to April 2022, a jump of 20 per cent compared with the previous year. HMRC said the sharp rise in the tax take had been driven mainly by increases in asset values and large numbers of residential property transactions, but noted that other factors had boosted the record figure. These included the impact of taxpayers selling out of assets to avoid a potential increase to CGT that was mooted in a 2020 report by the Office for Tax Simplification, a now-disbanded statutory body. The report was commissioned by Rishi Sunak when he was chancellor, but its recommendations were not enacted. Commentators have noted that the spectre of tax increases can be just as profitable for the Treasury as increases themselves. 

With asset-owning taxpayers wary of greater alignment of capital taxes with income tax, as recommended by the OTS report - many will have taken steps to dispose of assets as a pre-emptive measure. Taxpayers reported 153,000 CGT-liable residential property sales in 2021-22, according to HMRC data, up from 98,000 in 2020-21, when Covid-19 hit. The total gains and CGT liabilities for 2021-22 from residential property were £9.1bn and £1.8bn respectively — up 59% and 60% respectively on 2020-21, reflecting the surge in demand for houses at the peak of the pandemic. Official data for 2022-23, published last Thursday, pointed to a continuing trend in the CGT take from residential property, with total gains and liabilities remaining unchanged at £9.1bn and £1.8bn.

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This information is correct as at 21/08/2023. 

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. The Financial Conduct Authority (FCA) does not regulate estate planning or tax advice.

Article source: https://www.professionaladviser.com/news/4121535/fiscal-drag-means-record-people-pay-cgt