Figures released yesterday by HMRC on Capital Gains Tax have shown a record breaking result in 2018-2019 for CGT liability, with total tax reaching £9.5 billion during the year. This is a 6 percent increase from 2017-18.
In 2018-19, the total Capital Gains Tax liability was £9.5 billion for 276,000 CGT taxpayers. This liability was realised on £62.8 billion of chargeable gains. As with last year, the total CGT liability and gains increased, but the number of taxpayers decreased.
Most CGT comes from the small number of taxpayers who make the largest gains. New statistics this year show that in 2018-19, 40 percent of CGT came from those who made gains of £5 million or more. This group represents less than one percent of CGT taxpayers each year.
In 2018-19, broadly speaking, as income and size of gain increased, the number of individual taxpayers decreased. 42 percent of CGT gains for individuals came from 13 percent of CGT liable individuals, with taxable incomes of above £150,000, the additional rate threshold for Income Tax.
Just over a quarter of CGT came from CGT disposals that qualified for Entrepreneurs’ Relief (ER).
ER was claimed by 46,000 taxpayers on £27.7 billion of gains in 2018-19, resulting in a total £2.7 billion tax charge. This is the highest amount of gains and tax since the introduction of the relief. These statistics cover tax years before the reduction in the ER Lifetime Limit in Budget 2020.
Rebecca Durrant, partner and national head of private clients at Crowe UK, said it was “not surprising” that the statistics showed record levels of capital gains and tax paid as there “has been speculation for a number of years that the relatively low rate of capital gains tax is not sustainable therefore it is likely that investors and business owners are cashing in to take advantage of the rate while they still can.”
Zena Hanks, partner in the private wealth team at Saffery Champness, said that at a time when “every penny of tax revenue is needed to help pay off the country’s substantial Coronavirus debt, the Treasury will be pleased that the total amount collected through CGT continues to climb.”
Ms Hanks added that the fact that the top one percent of CGT taxpayers paid approximately 40 percent of the total amount of CGT, showed that the current regime “already ensures that wealthier taxpayers shoulder a significant amount of the overall CGT burden”.
This, Ms Hanks said, may not go unnoticed by Chancellor Rishi Sunak, who “may be reluctant to hike up the CGT rate for fear of discouraging wealthier individuals from selling assets pregnant with gain such as their second homes or investments in stocks and shares.”
Instead, Ms Hanks said reform would centre more around simplifying the CGT system, as the structure of the way CGT is applied to the sale and transfer of assets is “complex and notoriously tricky, particularly now the 30 day CGT system is operational, in which taxpayers must calculate their CGT bill, file it with HMRC and pay it off, all within a very narrow window of time.”
Looking ahead, both Ms Durrant and Ms Hanks believed that the government will need to tread carefully in the implementation of any changes to ensure, Ms Hanks said, “that a careful balance is struck between raising much needed public revenue and unintentionally driving unwanted behavioural changes amongst taxpayers”.
Ms Durrant said that if the Chancellor were to increase the CGT rate then “in theory the £9.5 billion tax take could be considerably higher, however for those of us that remember when CGT rates were last in line with income tax over 12 years ago (and as high as 40 percent), the number of transactions and the tax take was considerably less.”