The data from the 2021 to 2022 tax year reveals that it has been a bumper year for capital gains in the UK, setting records in both the amount of capital gains and the tax gathered from them.
£16.7 billion was owed in Capital Gains Tax (CGT) by 394,000 taxpayers, realised on £92.4 billion of gains. This shows a considerable 15% increase in both CGT and gains from the previous year, while the number of taxpayers grew by a huge 20%.
The tax take from CGT is only likely to get more stark as we look forward considering the changes to the Annual Exemption Allowance (AEA) for capital gains tax. From £12,300 in the 2022/23 tax year, the AEA reduced dramatically to £6,000 in April 2023 and will further drop to £3,000 from April 2024. This reduction could significantly boost the CGT take in future years, as taxpayers will have a lower threshold before becoming liable for CGT.
The data around CGT when it comes to property sales is significant with 139,000 taxpayers reporting 151,000 disposals of residential property in the 2022/23 tax year amassing a total liability of £1.8 billion, which is much larger than in the 2020/21 tax year. This data suggests that there is an exodus of landlords from the property market as the tightening of tax laws on Buy to Lets make them a more unattractive investment. Coupled with this the continuing high property values but simultaneous threat of a property price crash is seemingly making more landlords opt to sell up. How this ultimately impacts the market for all prospective buyers and renters is yet to be seen. Currently property prices are slipping slowly but rent remains sky high as renters compete for a dwindling stock of rental properties.
Similar to the distribution inheritance tax payers, a disproportionate share of CGT comes from a small number of taxpayers making the most significant gains. Less than 1% of CGT taxpayers, those making gains of £5 million or more, contributed to a whopping 45% of CGT in the 2021 to 2022 tax year.
Additionally, we see that as income and the size of the gain increased, the number of individual taxpayers decreased. For example, 45% of gains for CGT-liable individuals came from just 12% of individuals earning over £150,000. Regionally, London and the South East dominated, accounting for nearly half of total gains (49%) and tax liability (51%) in the 2021 to 2022 tax year.
As we look to the future and the prospect of these figures growing even larger it becomes crucial that taxpayers utilise the tools available to them such as maximising ISA and pension allowances and using other products like single premium investment bonds. Similarly, there are lots of financial planning opportunities that can help reduce your CGT burden so seeing a professional financial adviser can help reduce your bill.
For example, if you are planning to sell an asset and can spread the gain over two years you’ll be able to utilise your AEA for each year, ultimately reducing your liability. Also if you are married or in a civil partnership then you can transfer assets between each other without incurring CGT and ensure that you utilise both members of the couple’s AEA.
Finally, remember that you can offset your losses against your gains. If you have unfortunately realised a loss on an asset you can claim this against any other gains in your portfolio.
* Rachael Griffin is a tax and financial planning expert at Quilter *
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