- Capital gains tax liabilities fell 18% to £12.1 billion in 2023/24, according to data released by HMRC today
- Selling ahead of last October’s Budget will boost CGT receipts in the current tax year
- OBR forecasts CGT receipts to almost double to £25.5 billion by 2029/30
- CGT is not just a problem for the wealthy
- Some small shareholders may not be making the most of their ISA allowance
Laith Khalaf, head of investment analysis at AJ Bell, comments:
“Capital gains tax liabilities might have fallen back in the 2023 to 24 tax year, but that comes on the back of three very strong years for asset disposals, probably as investors sold up as a result of more punitive tax rules on second properties and ahead of the annual CGT allowance being cut to the bone. CGT liabilities are still 20% up on pre-pandemic levels, and perhaps more tellingly, more than 100,000 individuals and trusts have been drawn into the CGT net over the last five years.
“Looking forward, the OBR expects CGT receipts to almost double over the next five years, from an estimated £13.3 billion in 2024/25, to £25.5 billion in 2029/30 (see chart below). Receipts are expected to jump up by almost 50% to £19.7 billion in the current tax year, for which Rachel Reeves can take a bow. Receipts largely reflect selling activity in the previous tax year, and plenty of people took fright ahead of last October’s budget and decided to sell up, in case of a capital gains tax raid. As things turned out, the Chancellor’s changes to CGT for individuals were relatively modest, but those who disposed of assets at a substantial profit ahead of the Budget will still be on the hook for CGT, especially now the annual amount of gains you can make before paying the tax has been cut to just £3,000.
“There’s absolutely no room for complacency given the big jump in capital gains tax expected by the OBR. That’s assuming there are no further changes to CGT in this Autumn’s Budget. We know the public finances are tight, and without the three big levers of income tax, National Insurance and VAT to pull on, the Chancellor may return for another swipe at capital gains tax. Taxing investors more on their gains wouldn’t exactly serve to set alight the retail investing revolution which Rachel Reeves professes she is keen to instigate. Even if savers are spurred into stock market action by the ad campaign the government is planning, they may think twice if they see the Chancellor taking more of their profits for the Exchequer. Investing in UK shares is a hard message to sell to Sid if the small print includes a hike to tax rates.
“That’s particularly the case given the increasing number of smaller shareholders who will be brought into the CGT net by the new lower annual CGT allowance of £3,000. Data released by HMRC today shows that in the 2023 to 24 tax year, 203,000 people with a taxable income inside the basic rate band were liable for CGT. That’s over half of the 359,000 people liable for CGT in total, who were probably basic rate taxpayers. Higher earners still pay the lion’s share of CGT, but the large proportion of the tax base made up by those on more modest incomes shows that capital gains tax doesn’t just affect those with yachts and private jets.
“It also implies some of these people aren’t making the most of their ISA allowance, which would allow them to shelter gains from capital gains tax. Properties and unlisted shares can’t be held in an ISA, but with a £20,000 annual ISA allowance, there’s little reason for smaller shareholders on modest incomes to pay capital gains tax on listed shares, funds or investment trusts.”
Source: OBR
