Recent Government statistics indicate a reduction in both the payments and the number of people contributing to Capital Gains Tax (CGT), potentially signalling changes ahead for the tax.
With a daunting £22 billion budget deficit, the Government might be poised to increase CGT rates to bolster its finances.
Decline in CGT contributions
In the tax year 2022/2023, the total CGT liabilities stood at £14.4 billion, resulting from £80.6 billion in gains by 369,000 taxpayers.
This represents a 15 per cent fall in liabilities and an eight per cent decrease in the number of taxpayers from the year before, suggesting possible Government measures to counteract these declines.
Despite the overall drop, there was a noticeable increase in liabilities from residential property disposals, showing that some sectors within the CGT domain are still expanding.
The bulk of CGT is paid by a small fraction of taxpayers who achieve the largest gains – those who made over £5 million accounted for 41 per cent of the CGT, though they represent less than one per cent of the CGT-paying population.
Business Asset Disposal Relief
During the same period, Business Asset Disposal Relief (BADR) was utilised by 44,000 taxpayers on £12.5 billion of gains, which led to CGT liabilities of £1.2 billion.
BADR allows a reduced CGT rate of 10 per cent on qualifying assets for individuals who have been either sole traders or business partners and owned the business for at least two years before its sale.
However, the ongoing financial pressures might compel the Government to alter or terminate BADR.
Geographical trends in CGT
The distribution of CGT liabilities remains unchanged, with London and the South East making up about half of all gains (48 per cent) and CGT liabilities (50 per cent) in the 2022/2023 tax year.
This stability offers some predictability to taxpayers in these areas, although the general decrease in CGT mirrors wider economic trends, such as fluctuations in asset values and market conditions.
Potential implications of a CGT increase
As the Government wrestles with a substantial budget shortfall, the drop in CGT collections and the shrinking number of taxpayers have fuelled speculation that CGT rates may rise.
The Chancellor Rachel Reeves has left the possibility of such increases open, hinting at potential rate adjustments in the foreseeable future.
By strategically reviewing asset portfolios, timing disposals effectively, and exploiting available tax reliefs, individuals can soften the potential blow of any future tax hikes.
If you require guidance in managing your CGT commitments or need advice on how forthcoming changes to CGT could impact you, please contact us today.
