Capital Gains Tax receipts hit record levels

New data from HMRC has shown that an ever-growing number of Brits have paid a record amount of capital gains tax (CGT) for the tax year 2021-22.

Driven by rising house prices during that period and asset values, more than 394,000 people were drawn into the CGT net paying an eye-watering £16.7 billion in the tax year ending April 2022. The amount of CGT collected by the Government is increasing by, on average, 15% a year.

HMRC’s data reports that 153,000 people paid £9.1 billion in CGT following the sale of property – a marked increase on the £1.8 billion raised from property sales in 2020-21. It is likely this increase is caused by buy to let landlords exiting the market following progressively tightening tax reliefs available to landlords. Many part-time and accidental landlords are cashing in and selling property on. Furthermore, the extension of CGT to non-UK residents disposing of UK property has also added to the increase in CGT receipts.

CGT tax receipts are expected to continue to increase at least in the short term as the reduction in reliefs bite.

Chancellor Jeremy Hunt in his 2022 Autumn Statement said CGT allowances will drop from £12,300 to £6,000 in 2023 and to just £3,000 in 2024. Gains over these exemptions are taxed at 20%, with CGT on property taxed at 18% for basic rate taxpayers and 28% for higher rate taxpayers.

Where they can, people are taking action now to qualify for the maximum relief.

Reduce your CGT liability

CGT is often categorised as a ‘rich person’s tax’ but that is increasingly no longer true. Small shareholders, typically those now in retirement, are likely to find themselves caught in the CGT net should they decide to sell.

But it is possible to reduce your exposure to CGT. Here are five ways you can do this:

1. Exemptions. Everyone can make tax-free gains of up to £6,000 in the tax year to April 2024. This will fall to just £3,000 in subsequent tax years, so if you are planning on selling property, shares or other assets, consider bringing those plans forward.
2. Losses. Few people realise that any losses made on assets can be offset against gains reducing any CGT due. Losses can be carried forward from the previous four tax years, making it particularly useful.
3. Transfers. A transfer of assets between spouses and civil partners is free from CGT meaning you can access their exemption. Transfers must, however, be genuine gifts with no strings attached.
4. Charitable donations. Donations of land, property and shares to a registered charity are free from CGT. Donations also have attractive inheritance tax implications.
5. Assets free from CGT. Some assets, such as classic cars, watches and clocks, may be free from CGT. HMRC considers them ‘wasting assets’ with an expected lifespan of 50 years.

Finally, where possible, advantage should be taken of the ability for certain qualifying gains to be taxed at the preferential 10% CGT rate, or utilise rollover and holdover relief in certain scenarios.

The UK tax landscape is complex and HMRC has sophisticated technology at its fingertips to ensure it collects the tax it believes is due. It is therefore important that expert advice is taken if you are selling an asset that may incur a CGT liability.

For more information, please contact a member of our Private Client Services Team.