Decrease in Treasury receipts following Reeves's amendments to capital gains tax
The rates of Capital Gains Tax (CGT) on residential property have remained unchanged, but the higher rate paid by higher rate taxpayers has increased from 20% to 24%. Similarly, the lower rate paid by basic rate taxpayers has risen from 10% to 18%. These increases, coupled with reductions in the annual tax-free allowance, were expected to boost CGT receipts. However, recent data suggests otherwise.
According to HMRC and various financial reports, CGT receipts have decreased from £17 billion in 2022/23 to £14.5 billion in 2023/24, and further to £13.1 billion in 2024/25. This decline can be attributed to several factors.
Firstly, taxpayers have adjusted their behaviour to avoid or defer gains in response to higher CGT rates and reduced allowances. This has led to a decrease in the total capital gains realised, with gains reported at £65.9 billion in 2023/24, down 19% from the previous year.
Secondly, although the number of taxpayers liable for CGT has risen slightly due to the lower allowance bringing more gains within scope, total CGT liabilities have fallen by 18% to £12.1 billion in 2023/24.
The highest contributors to CGT remain a small group of taxpayers with very large gains, but overall gains in this group may have diminished.
In a surprising turn of events, the policy aimed at raising revenue has instead prompted behavioural shifts that have dented the tax take. This outcome indicates that the intended revenue-raising effect of the Autumn Budget’s CGT changes has "backfired" according to tax experts.
Moreover, the lifetime limit for Investors' Relief would be reduced to £1 million for all qualifying disposals made on or after 30 October 2024, matching the lifetime limit for Business Asset Disposal Relief. This move, along with the chancellor's announcement of a two-stage increase in the rate for Business Asset Disposal Relief and Investors' Relief, may further impact CGT revenues.
As the 2025 Autumn Budget approaches, renewed speculation suggests potential tax rises, including a wealth tax. If implemented, this could accelerate the exodus triggered by the abolition of non-dom status.
It is important to note that capital gains tax is not charged on the sale of certain assets, such as the main residence or certain types of investments. For those looking to reduce their CGT liability, strategies can be employed, as discussed in a separate article.
In conclusion, the recent changes in CGT rates and allowances have resulted in a decline in tax revenue, despite being designed to raise revenue. Understanding these changes and their implications is crucial for taxpayers and investors alike.
Business owners and investors, alike, may be adjusting their property and financial affairs in response to the increased Capital Gains Tax (CGT) rates, as the decreased CGT receipts from £17 billion in 2022/23 to £13.1 billion in 2024/25 indicate. This reduction can be linked to the behaviors taxpayers are adopting to avoid or defer gains, thereby impacting business and investment revenue.
