Insight & Analysis

Press release: Government tactics generate record-breaking CGT revenues

Published: Aug 2022

4th August 2022 – The latest statistics from HMRC published today show that the Treasury has benefitted from record amounts of Capital Gains Tax (CGT) in the tax year to 5 April 2021. Total CGT liabilities amount to £14.3bn, up 42% on the prior tax year. With the quantum of capital gains reported increasing by 19% and the quantum of CGT payers increasing by 20% on the prior tax year. This record-breaking quantum of CGT receipts comes hot on the heels of bumper receipts in the previous tax year (5 April 2020).

Newspaper press release

The bumper CGT receipts in the previous tax year were largely driven by the widespread speculation that Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief, would be abolished, which accelerated many entrepreneurs’ decision to sell their businesses.

In November 2020, the Office of Tax Simplification published a report on CGT that suggesting that CGT rates should be aligned with income tax rates, which in most cases would more than double the rate of tax applying on disposals of capital assets.

Ross Stupart, corporate tax partner at RSM UK, said: ‘Given the latest statistics, it would appear that the Treasury has continued to utilise fear tactics to drive up tax receipts from CGT collections. In addition, the fall in the BADR lifetime limit from £10m to £1m from 11 March 2020 has meant that the quantum of CGT liabilities has arisen as a higher value of capital gains will have fallen outside the BADR lifetime limit of £1m and in to the 20% rate of CGT. The statistics show that gains that the BADR was claimed on fell by 60%, which will be directly as a consequence of the reduction in the lifetime limit.

‘There is no doubt that concerns regarding changes in CGT rates has driven business transaction volumes and therefore the quantum of CGT being collected for 2020/21 tax year. With significant increases in the number of CGT payers in the 45 to 54 and 55 to 64 age categories, this may suggest that entrepreneurs are realising their business assets earlier than perhaps planned in order to remove the uncertainty around current tax policy from their business succession planning considerations. This begs the question around whether forcing entrepreneurs down this route could lead to sacrificing productivity and growth that could have provided a greater economic contribution in the long term.’

He added: ‘Whilst BADR may not be the solution that encourages entrepreneurism, there appears to be very little movement from the Chancellor in seeking to identify a tax policy that will act as a catalyst to encourage more entrepreneurs creating businesses, creating jobs, creating wealth for the greater good of the UK economy and ultimately the Treasury coffers.

‘It is essential now that proper research is funded by the Treasury in order to commence the creation of a tax policy that will motivate a new generation of wealth creators. Perhaps a good starting point would be to explore the introduction of a new tax relief for those who reinvest proceeds from a business sale into new businesses. It would be interesting to hear Ms Truss and Mr Sunak’s views on the tax policy they would look to adopt to clarify the tax regime that will apply to entrepreneurs selling their businesses.’

Chris Etherington, private client tax partner at RSM UK, said: ‘The latest capital gains tax (CGT) statistics highlight how younger investors and entrepreneurs have been coerced into paying tax earlier due to concerns over tax rate changes.

‘In the year to 5 April 2021, there was a 50% increase in taxpayers aged between 25 and 34 years of age paying CGT from the year before, rising from 10,000 to 15,000 taxpayers. The increase in CGT paid by this age group is a staggering 134% higher in the 2020/21 tax year – resulting in an extra £221 million of CGT being paid. There have been sizeable increases in the CGT paid in other younger age groups. The number of CGT taxpayers aged between 35 and 44 increased by 39% whilst the CGT they paid increased by 67%, rising from £988 million to £1.647 billion in the year to 5 April 2021. Those aged between 16 and 24 paid an additional £6 million in CGT in the 2020/21 tax year.’

He added: ‘The sizeable increases in CGT paid points to panic decisions being made by younger people in response to the lack of clarity on CGT rates and reliefs. Younger investors and entrepreneurs may have felt their hand forced by the risk of larger tax bills and selling an asset or business interest at an inappropriate time. It is sometimes said that the ‘tax tail should not wag the investment dog’ but the Treasury’s policy on CGT, or lack of it, has dragged taxpayers on the leash to selling their assets.’

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