08 August 2023
The latest statistics for capital gains tax (‘CGT’) revenues confirm how reactive these tax receipts can be to fear, rumour and speculation.
Diving into the details shows that a very small number of the country’s taxpayers are responsible for a large proportion of the CGT payments made.
In the year to 31 March 2022, 45% of the CGT paid to the Exchequer came from those with capital gains of £5m or more. These taxpayers represented less than 1% of those who made CGT payments in that year. So, who are these individuals that form this 1% CGT club?
The full details for the year to 31 March 2022 are not yet available but we do now have much more information from the year before. These figures for the 2020/21 financial year suggest that it is business owners that have significantly boosted the Treasury’s CGT coffers.
The statistics show that 92% of the chargeable assets disposed of during the 2020/21 financial year were financial assets, ie shares and securities, whilst 84% of all the gains declared related to disposals of financial assets. So, the sale of financial assets accounts for a huge part of HMRC’s CGT receipts. It is also worth noting that 61% of the gains made on financial assets in the year to 31 March 2021 related to sales of unlisted shares.
The disposal of unlisted shares is typically the preserve of business owners and they can be very responsive to changes to CGT, or even just the idea of changes.
HMRC’s own commentary on the CGT statistics mentions that speculation about a potential increase to CGT rates around the time is a key factor behind these bumper receipts. This was sparked by the recommendations made to the government by its adviser, the Office of Tax Simplification, that CGT rates could be more closely aligned with income tax rates.
Having successfully traversed the initial trials and tribulations presented by the pandemic, business owners faced speculation that they might see a big increase in the tax they would pay on a future sale.
The silence from the Treasury on the subject was deafening. No words of comfort were given that such a move was off the table. Instead, we saw a frenzied rush from individuals to bank the current standard higher CGT rate of 20%, accelerating sales to third parties or other means to trigger an early tax charge.
With a general election looming on the horizon, what proposals might we see on CGT? The political answer may not be the one entrepreneurs are hoping for. Ideally, they would be looking for some certainty on CGT so they can plan ahead without constantly looking over their shoulder for tax changes. The best policy for those crafting political manifesto pledges may be to remain as quiet as possible on the subject of CGT - allowing taxpayers to fill in the gaps themselves with speculation. As the latest statistics show, silence on CGT policy can be golden.