As many may have noted from the recently published statistics, capital gains tax (CGT) can be an unpredictable and volatile tax in terms of tax receipts. Much focus has been given to the headline decline in CGT paid in the 2023/24 tax year, but a closer look at the statistics highlights some other stories hidden in the detail.

Fiscal drag measures hit lowest earners the hardest

The new statistics provide the first detailed insight into the impact of cutting the CGT annual exemption. In the 2022 Autumn Statement it was announced that this annual exemption would be cut in the 2023/24 tax year from £12,300 to £6,000. A further cut would follow in the 2024/25 tax year when the annual exemption would be reduced to £3,000.

This measure had the effect of dragging more taxpayers into paying CGT and we can now see the impact of that in the 2023/24 tax year. HMRC estimates that up to 83,000 individuals were impacted by this.

The government’s initial predictions were that this move would raise around £25m in 2023/24, with revenues rising sharply in the following years. The actual revenues appear to have beaten that target, generating £38m in additional tax revenues.

This is relatively inconsequential in the context of the government’s wider finances, but it is interesting to see where the burden of this additional tax falls, given the revenues look set to substantially increase in future years. Looking at the breakdown, it is possible to see that the majority of gains below £10,000, which would be impacted by the cut in annual exemption, are generated by those with lower incomes. Nearly half of those with taxable gains at this level were basic rate income taxpayers (ie those with taxable income and gains under £37,700).

Lowest level of claims made by entrepreneurs in over a decade

The statistics highlight the decline in the number of Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) claims. The figures are bundled together, but if it follows a similar pattern to previous years then the figures for IR are likely to form a very minor part of the total statistics, as very few people are aware of the relief, let alone qualify for and claim it.

BADR was formerly known as Entrepreneurs’ Relief and has been subject to various changes in the last five years or so. It used to be a very valuable relief, but the maximum tax relief it will provide will be £60,000 per person from 6 April 2026.

The latest statistics show that the number of individual claimants of BADR and IR in 2023/24 was around 39,000. That represents a fall of over 13% from the year before when there were 45,000 claimants, and is the lowest level since 2012/13 when there were 35,000 claimants.

This is perhaps expected given the wider economic picture and the challenges faced by entrepreneurs in selling their businesses in the 2023/24 tax year. However, some may argue that this highlights that there is little in the tax system to incentivise entrepreneurial behaviour and perhaps more could be done to make it easier for those looking to start new ventures.

Sell-off of properties ahead of the Autumn 2024 Budget

It is clear that anticipation of CGT changes can distort taxpayer behaviour and there is evidence of that in the statistics relating to residential property disposals in the 2024/25 tax year. The level of CGT on such disposals was £408m in October 2024, the month of the budget, which is over double the CGT revenue in most other months of that tax year. It highlights how speculation around a potential increase to CGT rates in the Autumn 2024 Budget drove individuals to sell up in advance.

In the end, CGT rates did not go up on residential property disposals and the Chancellor benefitted from an inadvertent windfall. It might be seen as a cynical move, but it suggests Rachel Reeves does not need to necessarily increase CGT rates to raise revenues. It’s potentially possible to maximise CGT receipts by simply saying very little on the subject.

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