Recent figures from the Government have shown a decrease in both the payments and the number of people paying Capital Gains Tax (CGT), suggesting potential implications for its future direction.
Facing a budget deficit of £22 billion, the Government may consider raising CGT rates.
CGT payments in decline
During the 2022/2023 tax year, CGT liabilities amounted to £14.4 billion from £80.6 billion in gains, paid by 369,000 taxpayers.
This marks a 15 per cent decline in CGT liabilities and an eight per cent reduction in taxpayers compared to the prior year.
Although this decrease might appear positive, it could lead to Government intervention.
Notably, liabilities from residential property disposals saw an increase, pointing out areas within CGT that are still growing.
The majority of CGT continues to be paid by a small group of taxpayers who realise the largest gains.
In the 2022/2023 tax year, those who reported gains of £5 million or more contributed 41 per cent of all CGT, yet they make up less than one per cent of CGT taxpayers each year.
Business Asset Disposal Relief
In the same tax year, 44,000 taxpayers claimed Business Asset Disposal Relief (BADR) on £12.5 billion of gains, resulting in £1.2 billion in CGT liabilities.
BADR offers a lower CGT rate of 10 per cent on qualifying assets for those who have been either sole traders or business partners and owned the business for at least two years prior to selling.
Despite its benefits for those disposing of qualifying assets, the current economic strain might lead the Government to revise or even scrap BADR entirely.
Geographical trends in CGT
The distribution of CGT liabilities has remained stable, with London and the South East accounting for approximately half of all gains (48 per cent) and CGT liabilities (50 per cent) in the 2022/2023 tax year.
This consistency provides a level of predictability for taxpayers in these areas.
However, the overall reduction in CGT reflects broader economic shifts, including changes in asset values and market dynamics.
Potential implications of a CGT increase
The decline in CGT receipts and taxpayer numbers occurs as the Government grapples with a significant budget deficit.
With a £22 billion gap to bridge, there is mounting speculation that CGT rates might increase.
Chancellor Rachel Reeves has not dismissed these speculations, leaving the door open for potential rate hikes in the near term.
Taking proactive steps, such as assessing asset portfolios, timing disposals strategically, and utilising available reliefs, could mitigate the impact of any upcoming tax increases
If you need help with managing your CGT obligations or advice on how potential changes to CGT could affect you, please get in touch with us today.
