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Britons paid a record £16.7bn in capital gains tax in the 2021-22 financial year on the back of rising asset values and more house sales, according to official data published on Thursday.
Figures from HM Revenue & Customs showed a 15 per cent year-on-year increase in the amount of CGT liabilities due to the Treasury. The number of people who owed the tax — which is levied on the financial gain made when an asset is sold — also hit an all-time high of 394,000 in the year to April 2022, a jump of 20 per cent compared with the previous year.
HMRC said the sharp rise in the tax take had been driven mainly by increases in asset values and large numbers of residential property transactions, but noted that other factors had boosted the record figure.
These included the impact of taxpayers selling out of assets to avoid a potential increase to CGT that was mooted in a 2020 report by the Office for Tax Simplification, a now-disbanded statutory body. The report was commissioned by Rishi Sunak when he was chancellor, but its recommendations were not enacted.
Richard Jameson, partner at Saffery Champness, an accountancy firm, said the record figures suggested “above all . . . that the spectre of tax increases can be just as profitable for the Treasury as increases themselves”.
“With asset-owning taxpayers wary of greater alignment of capital taxes with income tax, as recommended by the OTS report . . . many will have taken steps to dispose of assets as a pre-emptive measure,” he added.
Taxpayers reported 153,000 CGT-liable residential property sales in 2021-22, according to HMRC data, up from 98,000 in 2020-21, when Covid-19 hit.
The total gains and CGT liabilities for 2021-22 from residential property were £9.1bn and £1.8bn respectively — up 59 per cent and 60 per cent respectively on 2020-21, reflecting the surge in demand for houses at the peak of the pandemic.
Official data for 2022-23, published on Thursday, pointed to a continuing trend in the CGT take from residential property, with total gains and liabilities remaining unchanged at £9.1bn and £1.8bn.
Rachael Griffin, chartered financial planner at Quilter, a wealth management firm, said Thursday’s data pointed to “an exodus of landlords from the property market”, as the draw on buy-to-let properties was dented by tightening tax laws.
Since 2020, buy-to-let landlords have not been able to deduct any mortgage expenses from rental income when calculating their taxable profit. Instead, they receive a tax credit based on 20 per cent of the mortgage interest paid.
Other factors likely to have contributed to the record figure include the sharp cut in entrepreneur’s relief, which fell from a lifetime total of £10mn to £1mn in March 2020.
Meanwhile, the record number of people paying the tax is likely to grow in coming years as the reduction of the CGT annual exemption takes effect.
Chancellor Jeremy Hunt announced in the Autumn Statement last year that the allowance would drop from £12,300 to £6,000 this year. It will be halved again in April 2024 to £3,000.
Laith Khalaf, head of investment analysis at investment platform AJ Bell, said that while CGT had “often been characterised as a rich person’s tax . . . the net is going to be cast a lot wider, and more small shareholders are going to find themselves trapped in it”.
