The number of people paying capital gains tax (CGT) has hit 281,000 as the government collected a record £8.8bn in the last tax year, with total chargeable gains hitting £57.9bn in 2017-18
The increase reflects a consistent trend over the last four years, as the Treasury continues to raise substantial tax take from CGT. In 2017-18 CGT revenue rose to £8.8bn, up 14% on the previous year’s £7.74bn. This puts liabilities at above the 2015-16 level, the previous record high for CGT liability. The amount of gains liable for CGT also shot up 13% from the previous year’s £51.2bn. Since 2010-11, the Treasury has seen CGT revenues double from £4.31bn to £8.8bn a year.
The number of CGT taxpayers increased by 3% to 281,000, according to the latest HMRC figures. This growth continues the long-term trend, which shows the amount of CGT rising since 2013/14. The main CGT rates were reduced from 18% and 28% to 10% and 20% respectively from 2016/17, except for gains carried on interest and residual property, helping to explain the continued rise in revenue. The higher charge was introduced by former chancellor George Osborne in 2010 as part of austerity measures.
Most CGT revenue comes from a relatively small number of taxpayers who make the largest gains. In 2017-18, 62% of CGT came from those who made gains of £1m or more. This group generally represents around 3% of CGT taxpayers each year.
In 2017-18, around 13% of income tax paying individuals were higher rate taxpayers, whereas 31% of CGT liable individuals had a taxable income of between £33,500 and £150,000, while 12% of CGT liable individuals had a total taxable income of above £150,000.
Zena Hanks, partner at Saffery Champness, said: ‘The UK’s property and stock market has generally speaking maintained its strength and composure following the initial Brexit upheaval, therefore it may come as no surprise that CGT receipts from the sale of assets continued in an upward direction.
‘At the same time, the £20,000 annual ISA allowance does give the relatively small proportion of taxpayers who are liable to CGT the ability to shelter a proportion of income and gains to mitigate their tax exposure.
‘The increase in CGT receipts from the number of taxpayers selling interests in businesses and claiming entrepreneurs’ relief perhaps signals continued investor appetite in UK enterprises, in spite of Brexit uncertainty.
‘The challenge for the new Chancellor will be to negotiate the UK through Brexit in a way that maintains strong asset values that supports the UK economy, incentivises the nations entrepreneurs and ensures a CGT rate that encourages transactions on which CGT is ultimately paid.’
However, there was a decline in extractions from trusts, where the totals for the number of taxpayers, amount of gain and amount of tax all decreased. Despite this, the mean value for the amount of gain and tax for trusts has increased from 2016-17 to 2017-18. Historically the number of CGT liable trusts and their chargeable gains and tax paid have been volatile.
Entrepreneurs’ relief was used in over a quarter (27%) of the disposals, which had a value of £2.4bn. This percentage is broadly similar to preceding years. The total number of taxpayers claiming ER increased by 6% in 2017-18 compared with the previous year but is still less than the number of ER taxpayers in 2015-16, which was a record high. There were corresponding increases of 8% in the gross ER gains and ER tax liability for 2017-18 compared with last year.
London and the South East of England made up 41% of individuals who were liable to CGT in the UK in 2017-18.
Changes to CGT rules
From 29 October 2018, in addition to existing qualifying conditions for entrepreneurs' relief, shareholders are also entitled to either at least 5% of the distributable profits and net assets of a company or at least 5% of the proceeds in the event of a company sale to claim the relief.
From 6 April 2019, the minimum period throughout which the qualifying conditions for ER must be met was extended from 12 to 24 months. Also, individuals whose shareholding is ‘diluted’ below the 5% qualifying threshold for entrepreneurs’ relief as a result of a new share issue are allowed to obtain relief for gains up to that time.
Sara White | 01-08-2019