CGT receipts have delivered another bumper year for the Treasury. The total amount of gains in 2021/2022 represented a 15% increase from the previous year, while the number of taxpayers increased by 20%.
It should be remembered that there is always a lag in the annual tax data being published. This latest update from HMRC relates to the 2021/2022 tax year, but there is some interesting accompanying commentary. In November 2020 the Office of Tax Simplification published a report on CGT in which they made a recommendation to ‘consider more closely aligning Capital Gains Tax with Income Tax rates’.
HMRC has suggested in its update today that these recommendations (which weren’t implemented) could have driven taxpayers to bring forward disposals in response to anticipated tax rises. HMRC also acknowledges that that some of the increase in CGT liabilities was driven by the lifetime limit on Business Asset Disposal Relief being reduced.
Since 2008 there has been no relief for inflation for individual taxpayers and so this increase in CGT take reflects the nominal rather than real (post inflationary) increase.
The data shows that there were large increases in the amount of gains and tax and the number of taxpayers disposing of residential property. This is not surprising given the combined impact of tax changes and rising interest rates on they buy-to-let market.
As things stand, we expect to see CGT receipts increase further given additional restrictions due to come into force. From this tax year there is a sharp reduction in the annual exemption to £6,000 and it is due to halve again to £3,000 from 2024/2025 onwards. These changes will drag more individuals into the net for CGT.
“From speaking to our clients and recent research we conducted amongst business owners, we know that many are concerned that the tax regime could become even more restrictive and are accelerating the sale of assets before any potential tax changes, such as a possible increase in the rate of CGT.
Anyone thinking of selling a property or business should remember it can be a lengthy process – particularly when it comes to disposing of large assets – and so planning ahead would be recommended. However tax is only one aspect to consider when disposing of an asset.
No changes to the rate of CGT have been proposed as things stand, but the outlook for CGT post the next General Election remains uncertain at this stage. Nevertheless with the known changes to the annual exemption there are a number of areas that individuals can consider to minimise the impact.
Looking to the future of CGT, both the Chancellor and Shadow Chancellor have said that they want to prioritise growth and business. 2022 brought a lot of upheaval in tax, including four Chancellors.
For now, in the determination of key strategic priorities the Government is likely to accept that it cannot do everything, which could imply that major tax reforms, including to CGT, are off the agenda. An exercise in assessing the value for money of reliefs in the tax system is likely to guide any possible changes, including tinkering with CGT reliefs, particularly as only a third of the reliefs have been officially costed.
Good tax reform requires three key elements. Clarity of purpose (i.e. what is the policy objective), consistency across multiple electoral cycles (i.e. ideally some political and broader societal consensus) and measurement of impact over the medium term (i.e. proper assessment of the benefits as well as the costs).
The Office of Tax Simplification, an independent body that bore an important part in this and produced the November 2020 report on CGT simplification mentioned by HMRC today (as well as another CGT report), was only recently shut down, though some of its recommendations for CGT were implemented. The idea is that more of the task of future simplification will be taken on by HMRC, but given its current struggles with service levels and performance this could be a major challenge.
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