In a revealing trend, Capital Gains Tax (CGT) receipts in the United Kingdom have reached a record £16.7 billion in the 2021/22 tax year, reflecting a 15% increase on the previous record. Furthermore, the number of payers rose by 20% to 394,000, which is more than double the figure from a decade ago.
The recent data dispels the common belief that CGT is a concern exclusive to the super wealthy. It shows that 214,000 people paid CGT on gains of up to £25,000, and the CGT free allowance was notably cut from £12,300 in the 2022/23 tax year to £6,000 for the current year.
The HMRC’s annual CGT figures reveal a wider implication of this tax, touching various segments of the population.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, voiced her insights on this matter: “With record numbers of people paying capital gains tax and tax-free allowances plummeting, CGT is no longer a tax most investors can ignore. Although almost half (45%) of the total CGT paid is on super gains of £5 million or more, this tax is not just for the super wealthy. Overall, the numbers paying this wealth tax has more than doubled in 10 years and this number is only set to rise.”
Morrissey further commented on the shifting priorities for those who deal with investments and capital gains, highlighting the growing importance of annual CGT allowance. She also spoke about the continuous challenges faced by landlords under the existing capital and income tax regime.
Another dimension to this trend is seen in the residential property sector. There were 139,000 taxpayers who reported 151,000 disposals of residential property in the 2022 to 2023 tax year, with a total liability of £1.8 billion. Though similar to the previous year, it’s a notable 56% and 60% increase from the 2020 to 2021 tax year. This reflects the growth in activity in the property market post the first year of the pandemic.
Given the evolving landscape of capital gains tax, experts have recommended certain strategies known as CGT trap beaters. These include making full use of the CGT allowance every year, offsetting losses against gains, sheltering the portfolio in ISAs as much as possible, planning as a couple, and considering a Venture Capital Trust for specific situations.
These strategies offer ways to navigate the complexities of capital gains tax, which seems to be spreading its net wider than before. The latest figures prompt a renewed scrutiny of investment and taxation strategies, emphasizing that CGT considerations are no longer limited to the elite but have become a mainstream financial concern for many in the UK.