Capital gains tax liabilities hits record amount in 2024/25 – HMRC

Alex Ranahan, tax reporting analyst at FSL: 

“The statistics show whopping increases in the number of taxpayers, the amount of gains, and the tax paid. 

“The clear policy intent of the Conservative governments of bringing more taxpayers into paying CGT by reducing the annual exempt amount (high by international standards) worked as 76,000 additional taxpayers made enough gains to owe tax. 

“However, these additional taxpayers were responsible for less than 1% of the additional tax revenue. 

“This shows the limits of what policy can achieve: widening the tax base works for the big revenue raisers like income tax, but for a relative minnow like capital gains tax the amounts at stake are trivial.

“The rise in CGT rates in the middle of the year, combined with speculation in the lead-up to the Autumn Budget, are given as chief reasons for the 82% rise in gains crystallised and 89% rise in CGT paid. 

“At the same time, the announcement of the reduced relief available for selling a business, given six months before it took effect, is given as reason for the 69% rise in the tax paid on disposals with Business Asset Disposal Relief or Investor Relief claimed. 

“We will never know if the decision to change the main rates of CGT effective from the date of the Budget, rather than from the start of the next tax year, led to significantly higher tax revenue for the government. 

“But I think it is fair to say that the combination of tax rates rising immediately, combined with the knowledge that the annual exempt amount would diminish again from April 2025, led some taxpayers to take the hit in the period between the Budget and the next tax year in order to benefit from that exemption.

“For that period pre-Budget, it is very obvious (as everyone predicted at the time) that investors would crystallise their gains as soon as possible before the Budget because they foresaw that the new Government would raise CGT. It would be shocking to say the least if we saw similar figures in next year’s statistics.

“Finally, the government has published the first data we have on CGT paid on cryptoassets. 

“HMRC has taken the decision to publish the breakdown by gender, reporting female and male taxpayers separately. 

“This is to highlight the vast discrepancy in profile: the number of female taxpayers reporting cryptoasset gains is 2,330 but the male number is 15,280! 

“There is a clear gender divide in investment in cryptoassets – or, perhaps, in self-assessment of cryptoasset taxpayers – and it will be interesting to see how HMRC approaches its information gathering and one-to-many campaigns going forwards.”

David Little, partner in financial planning at Evelyn Partners: 

“This is a remarkable surge in CGT liabilities for the 2024/25 financial year, which is even greater than that suggested by recent receipts data. 

“Never have UK investors realised more gains or paid more tax in a financial year.

“As HMRC itself notes, it seems likely we are seeing the reaction of investors to firm expectations that there would be increases in CGT rates at the 2024 Autumn Budget, as well as the announcement that Business Asset Disposal Relief rate would increase from April 2025.

“We certainly saw some clients crystallising gains ahead of that first Rachel Reeves Budget, when CGT rose with immediate effect on 30 October, from 10% to 18% for basic rate taxpayers and 20% to 24% for those on the higher rates of tax.

“Crucially, disposals at that time were made against a background of consecutive yearly reductions to the Annual Exempt Amount – the tax-free allowance that taxpayers can realise in gains before paying CGT – from £12,300 to £3,000, which left investors with far less protection against taxable gains.

“HMRC itself notes that as many as 163,000 taxpayers were brought into the scope of CGT by the consecutive reductions in the AEA implemented on 6 April 2023 and 6 April 2024. 

“Altogether in 2024/25 tax year, those cuts to the annual CGT allowance resulted in an additional £4.8 billion of gains being charged to CGT.

“For UK investors, all this points towards the importance of using tax-protected wrappers where possible for their investments, including ISAs and pensions. 

“It also highlights the wisdom of using up, where appropriate, the £3,000 annual exemption each year to realise gains tax-efficiently over time. 

“Finally, married couples have the advantage of being able to use interspousal transfer and two sets of allowances (for both ISAs and the AEA), with the option of a lower-rate taxpayer holding chargeable gains.

“Whether disposals made after that October 2024 Budget, at the higher rates, continued to boost CGT liabilities and receipts remains less clear, as it seems likely that most investors had already acted in advance. 

“We’ll have to wait until the first quarter of next year before we really start seeing any impact from the CGT rate hikes, and it will be interesting to see if investors have been put off disposing of assets and realising gains.”