CGT take hits record £9.5bn

HMRC raised a record £9.5bn of capital gains tax (CGT) in 2018-19, up by 6% on the previous year, with most of the tax raised paid by the small number of taxpayers who make the largest gains

Latest HMRC statistics show CGT liability was  realised from 276,000 taxpayers on £62.8bn of chargeable gains, a 7% increase.

In 2018-19, 40% of CGT came from those who made gains of £5m or more. This group represents less than 1% of CGT taxpayers each year.

Just over a quarter of CGT came from disposals that qualified for entrepreneurs’ relief. In 2018-19, entrepreneurs’ relief was claimed by 46,000 taxpayers on £27.7bn of gains resulting in a total £2.7bn tax charge.

This is a 13% increase on 2017-18 levels and the highest amount of gains and tax since the introduction of the relief.

HMRC says the amount of total gains eligible for entrepreneurs’ relief has more than doubled over the last eight years but has grown slower than non-qualifying gains over the same period.

Gains that are eligible for entrepreneurs’ relief account are concentrated amongst individuals who have large gains. More than 74% of gains and 76% of tax charged at the entrepreneurs’ relief rate in 2018-19 was from the 13% of individuals with qualifying gains of £1m or more.

Furthermore, 36% of gains and 37% of tax charged at the entrepreneurs’ relief rate were from the 2% of individuals with qualifying gains of £5m or more.

Zena Hanks, partner in the private wealth team at Saffery Champness, said that while the Chancellor would be pleased that the total amount collected through CGT continues to climb, the increases in chargeable gains and in CGT collected may not necessarily continue.

Hanks said: ‘2018-19 was a year of ongoing Brexit uncertainly tainting the financial markets, which may have encouraged some investors to cash-in their investment portfolios, which may go some way to explaining the increased CGT takings for the Exchequer.

‘Furthermore, the lingering threat of a Corbyn government may have prompted some individuals to crystallise capital gains and sell their assets such as a second home in advance of election day for fear that a CGT hike was on the cards pending a Labour victory.’

However, Hanks said the record amount of gains on which entrepreneurs’ relief was claimed in 2018-19 may be one of the factors which prompted the Chancellor to substantially reduce the lifetime cap to £1m, as he may have felt the relief was simply becoming too costly for the Treasury to justify the expense.

The Chancellor has asked the Office of Tax Simplification to review the CGT regime, and in the light of the recent changes to entrepreneurs’ relief and principal private residence relief, there have been suggestions that further reforms are on their way.

Hanks said: ‘Some commentators have framed potential reforms to the CGT system as a means of making the tax system as a whole more equitable, arguing that wealthier individuals are more likely to receive more of their annual income from capital gains, therefore they should pay the same rate of tax as salary-earners.

‘However, what these statistics show is that the top 1% of CGT taxpayers - that is those individuals with qualifying gains of £5m of more - paid approximately 40% of the total amount of CGT, so the current CGT regime already ensures that wealthier taxpayers shoulder a significant amount of the overall CGT burden.

‘This fact will not have gone unnoticed by the Chancellor, and consequently he 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.’

Rebecca Fisher, partner in the private client team at Russell-Cooke, argued that the latest statistics do not reflect the impact of recent changes to the regime.

‘Although CGT liabilities and gains have increased, the figures will not have factored in the significant change of non-residents being liable for CGT on commercial property, the same as their UK counterparts, from 6 April 2019.

‘Nor will they have taken into account the reduction of the lifetime allowance from £10m to £1m from 11 March 2020 for entrepreneurs’ relief.

‘The CGT cash flow for the exchequer will continue to improve in the coming years with the introduction of CGT reporting and the payment of tax within 30 days of completion of the sale of UK residential property from 6 April 2020.

‘It will however be sometime before the impact of these changes will be borne out in the statistics and in any case, the sweeping Covid losses may mitigate any increase in CGT revenue.’

CGT statistics

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