In the fiscal year 2022/23, Capital Gains Tax (CGT) collected by the UK government reached a staggering £18.1bn, marking an increase of £7bn over the past two years, according to new figures from HM Revenue and Customs (HMRC).
This significant surge, which has seen CGT receipts double over the last five years and triple over the past decade, has been largely driven by buy-to-let landlords offloading their properties.
The trend is expected to continue in light of recent changes to the CGT annual tax-free exemption, which was reduced from £12,300 to £6,000 and is slated to drop further to £3,000 starting April next year.
Sean McCann, chartered financial planner at NFU Mutual, explained the reasons behind the sharp increase in CGT. “More buy-to-let landlords are selling their properties due to rising mortgage rates, and they are being taxed based on the appreciation in their property’s value,” he said.
“With the average UK property value having grown by 70% over the last decade, many landlords are facing substantial tax bills. Moreover, the recent cut in the annual CGT exemption from £12,300 to £6,000, which is set to further decrease to £3,000 next April, has prompted many landlords to expedite their property sales to take advantage of the higher tax-free exemption.”
In addition to the property market, fluctuations in the stock market and increased interest rates on cash are also believed to have prompted some investors to sell shares, which would have led to taxable gains.
CGT, which is levied when investors make gains on shares or properties that aren’t their primary residences, is now even more substantial than the stamp duty. A lesser-known fact about CGT is that it is also applicable to gifts.
“There are several capital gains tax traps that people unwittingly fall into. Most notably, few realise that giving away property, shares, or other investments can trigger a tax bill. For instance, if a parent gifts a property or a share portfolio to their children, it’s deemed to be a disposal and could be liable for Capital Gains Tax. Moreover, if the person making the gift dies within seven years, the gift could also attract an Inheritance Tax bill,” McCann added.
HMRC’s data reveals a consistent increase in CGT receipts over the years, with forecasts predicting this trend to continue, reaching £26.1bn by 2027-28.
