Capital gains tax receipts increase £5bn in two years: Is its future aligned with income tax?
The amount of Capital Gains Tax collected by the government has shot up by more than £5bn in the past two years, according to official figures from HMRC.
Rising from £9.8bn in 2019/20 to £14.9bn in 2021/22, the huge increase comes after changes to the tax and rising house prices.
The increase in Capital Gains Tax receipts is being driven by a combination of factors, explained Sean McCann, Chartered Financial Planner at NFU Mutual.
McCann told City A.M. this morning: “In March 2020 changes were made to Business Asset Disposal Relief, previously known as Entrepreneur’s Relief, which allows business owners selling all or part of their business to pay only 10 per cent capital gains tax rather than the top rate of 20 per cent.
“The amount of lifetime gains that qualify for Business Asset Disposal Relief was slashed from £10m to £1m, meaning business owners are paying 20% on more of their gains when they sell,” he added.
“The runaway property market over the past two years is also likely to have contributed.
Sean McCann
“There is an 8 per cent surcharge for those who dispose of residential property that isn’t their main home, meaning those disposing of buy-to-let property pay CGT rates of 18 per cent to 28 per cent,” McCann added.
“Changing legislation has made buy-to-let investing less attractive and rising house prices have increased the gains of those selling up.”
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 increase.
To mitigate the impact married couples and civil partners can transfer assets between them to utilise both annual exemptions, allowing them to realise up to £24,600 of tax-free gains each tax year, McCann explained.
Ten years of CGT receipts
| 2012/13 | £3.9bn |
| 2013/14 | £3.9bn |
| 2014/15 | £5.6bn |
| 2015/16 | £7.1bn |
| 2016/17 | £8.6bn |
| 2017/18 | £7.8bn |
| 2018/19 | £9.2bn |
| 2019/20 | £9.8bn |
| 2020/21 | £11.1bn |
| 2021/22 | £14.9bn |
Is the future of CGT aligned with income tax?
In 2020 the Office of Tax Simplification recommended aligning CGT rates to Income Tax rates and estimated it would raise £14bn extra a year, but so far the Treasury has ignored the suggestion.
“Even though the government is collecting more Capital Gains Tax than ever before, it’s still paid by relatively few people, and the vast majority of those are higher and additional rate taxpayers,” McCann said.
“Considering the current cost of living crisis, it’s possible the Chancellor could look at CGT rates in the Autumn as a way of raising funds to help pay for other areas of support,” he concluded.