- Latest figures on CGT receipts show tax take reached a new record
- Capital Gains Tax receipts hit £14.3bn in 20/21 tax year, up over 40% from £10bn
- The number of people paying the tax hits a record high at 323,000
- Average bill is almost £45,000
- Frozen allowances and more people paying the higher rate are to blame…
- …as are rising asset prices and the housing market boom
Laura Suter, head of personal finance at AJ Bell, comments on the latest figures on CGT receipts:
“Rising investment markets and soaring house prices, coupled with frozen tax allowances, meant that taxpayers paid a record amount in capital gains tax last year. The Government took £14.3bn in capital gains tax in the 2020-21 tax year, a whopping 42% increase compared to the previous year when £10bn was paid.
“The number of people paying the tax rose by 20%, to hit an all-time high of 323,000 people. It means the average CGT bill was almost £45,000, although many people paid substantially more given that almost half of the taxman’s CGT revenue came from people paying tax on a gain of £5m or more.
“The rise in capital gains tax is partly due to rising asset prices but also down to frozen allowances. The tax-free allowance has been frozen at £12,300 until 2026 and hasn’t increase since 2020. It means that the coming year’s figures are going to see more people reporting gains above the allowance, meaning the tax take could rise further.
“Taxpayers are hit by a double whammy of frozen bands too. While CGT doesn’t match income tax rates, your income tax band does determine whether you pay CGT at 10% or 20% (18% or 28% for property). As income tax bands have been frozen we’ve seen more people pushed into the higher rate tax band, meaning their CGT rate jumps from 10% to 20%, or from 18% to 28%.
“The booming housing market is also a big reason for such large tax receipts. CGT is charged at a higher rate on second homes, at 18% for a basic-rate taxpayer and 28% for those paying the higher or additional rate of income tax. The pandemic saw lots of people sell property as prices soared, and a number of landlords and second-home owners decided to sell in order to capitalise.
“HMRC also pegs some of the increase in CGT receipts to rumours that the tax was going to be aligned with income tax rates, which would significantly increase the tax due on any gains. It says media speculation led to people selling up to take advantage of existing rates, meaning more gains were recorded in 2020-21 as people decided to realise gains earlier than they otherwise would.
“In the past week alone we’ve had record-breaking receipts for capital gains tax, inheritance tax and insurance premium tax – showing just how greedy the taxman has gotten in recent years. This tax burden is only going to increase as the toxic effect of frozen allowances and rising inflation push more and more people into paying more and more in tax.”
