Is Capital Gains Tax due to increase?
Recent Government data has revealed a drop in Capital Gains Tax (CGT) payments and the number of individuals paying it, a trend that might have important implications for the future.
With a £22 billion budget black hole to fill, the Government could be eyeing CGT for potential increases.
Current state of CGT
In the 2022/2023 tax year, the total CGT liability was £14.4 billion, realised on £80.6 billion of gains by 369,000 taxpayers.
This represents a 15 per cent decrease in CGT liability and an eight per cent drop in the number of taxpayers from the previous tax year.
While this reduction might seem beneficial at first glance, it also signals a worrying trend that could prompt Government action.
Despite the overall decrease, liabilities from residential property disposals increased, highlighting specific growth areas within the CGT framework.
The bulk of CGT continues to come from a small number of taxpayers, who make the largest gains.
In the 2022/2023 tax year, 41 per cent of CGT was generated by those who made gains of £5 million or more – a group representing less than one per cent of CGT taxpayers annually.
Business Asset Disposal Relief
Business Asset Disposal Relief (BADR) was claimed by 44,000 taxpayers on £12.5 billion of gains in the 2022/2023 tax year. This resulted in CGT liabilities of £1.2 billion.
BADR allows you to only pay tax at a rate of 10 per cent on all gains on qualifying assets (up to a maximum of £1 million).
If you are selling all or part of your business, you must be either a sole trader or business partner and owned the business for at least two years to qualify for BADR.
If you are selling shares or securities, both of the following must apply:
- You are an employee or office holder of the company (or one in the same group)
- The company’s main activities are in trading (rather than non-trading activities like investment) – or it’s the holding company of a trading group
These criteria must be applicable for at least two years up to the date you sell your business.
This relief is important for those disposing of qualifying business assets, offering a reduced CGT rate.
However, with the current economic pressures, there is speculation that the Government might adjust the relief rates or abolish BADR all together.
Regional distribution and trends
The regional distribution of CGT liabilities remains consistent, with London and the South East of England accounting for around half of total gains (48 per cent) and CGT liability (50 per cent) in the 2022/2023 tax year.
This stability provides some predictability for people in these regions.
However, the decrease in overall CGT liabilities reflects broader economic trends, including fluctuations in asset values and market dynamics.
Implications of a potential CGT increase
The decrease in CGT liabilities and the number of taxpayers comes at a time when the Government faces a large budget deficit.
With a £22 billion shortfall to address, there is increasing speculation that CGT rates could rise.
The Chancellor Rachel Reeves has not dampened this speculation, refusing to rule out CGT increases in the near future.
For many across the country, this potential increase shows the importance of strategic tax planning.
Proactive measures, such as reviewing asset portfolios, considering the timing of disposals, and exploring available reliefs, can help relieve the burden of any future tax hikes.
If you would like assistance with mitigating your CGT obligations or would like any advice regarding the future of CGT and how it will impact you, please contact us today.
