CGT revenues at risk without Spring Statement reforms

05 October 2022

Whilst much of the government’s tax revenues spiralled downwards during the Covid-19 pandemic, the Chancellor has been able to rely on consistently high Capital Gains Tax (‘CGT’) receipts over the last couple of years to help prop up the Government’s finances.

That has been driven, in part, by speculation that Mr Sunak could raise CGT rates so they are more closely aligned to income tax rates. With no clarity forthcoming from the Treasury to ease taxpayers’ concerns, we have seen CGT revenues soar from just under £9 bn in the 2017/18 tax year to an amount that is likely to exceed £13bn for the 2021/22 tax year – a record high.

Of those amounts, around 40 per cent of CGT receipts come from less than 1 per cent of CGT taxpayers who have gains of £5m or more in the year. Business owners selling out make a significant contribution to those CGT figures but are becoming increasingly frustrated at the lack of any discernible CGT policy beyond what appears to be a vow of silence from the Treasury on the subject of any rate rises.

The CGT gravy train could soon come to a juddering halt for the Chancellor. With inflation increasing, potential acquirers in the M&A market could pause or withdraw from transactions until economic uncertainty clears. Reports are already highlighting a rapid slowdown in City dealmaking. Given the reliance of CGT revenues on big-ticket transactions, the Treasury could see a drop off in receipts for the forthcoming tax year as a result.

In these circumstances, it seems highly unlikely that the Chancellor would see this as the right moment for an increase in CGT rates.

It is the right time for the Chancellor to provide proactive leadership and encourage entrepreneurialism with tax reforms.

In the annual Mais lecture at Bayes Business School, the Chancellor gave us a flavour of the main course we can expect to be served at the Spring Statement on 23 March 2022. He wants to build a “future economy built on a new culture of enterprise”.

In order to build this new culture, entrepreneurs require transparency and consistency in the tax policy to understand what they are building towards and encourage others to start their own businesses. A starting point would be a clear announcement on whether entrepreneurs can expect CGT rates to remain at their current level for the remainder of the parliament.

A next step would be to undertake research and open a consultation on the tax reliefs available to encourage entrepreneurial behaviour. One option may be looking at tax reliefs that encourage entrepreneurs to reinvest more of their sales proceeds into new ventures.

The Chancellor has outlined that the plan to drive national productivity should include a focus on ideas. It is time for some new ones on CGT policy.