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UK’s Capital Gains Tax bill jumps 35% to record £14.6bn

The UK’s Capital Gains Tax bill has jumped 35% from £10.8bn to a record £14.6bn in the past year* following a rise in tax on entrepreneurs selling businesses, says Bowmore Financial Planning.

HMRC’s yield from Capital Gains Tax has risen significantly in recent years, with the latest total almost double the £8.1bn collected five years ago and more than treble the £4bn collected a decade ago.

Bowmore says the record increase in the past 12 months has been driven by three major factors:

  • Increase in tax on the sale of businesses – the lifetime limit for Entrepreneurs Relief (now Business Asset Disposal Relief) has been lowered from £10m to £1m, costing some business owners millions in extra tax when they sell their stakes
  • Buy-to-let property investors taking profits in the hot housing market – the average UK house price rose 16% from January 2020 to December 2021**
  • The stock market rally – the FTSE 100 rose 42% from its pandemic low through to the end of 2021

Given the sharp rise in inflation, Chancellor Rishi Sunak will be under pressure to repair the Government’s finances in a way that doesn’t affect the most economically vulnerable in society.

Bowmore says there are continued concerns the Chancellor might look to raise CGT rates, potentially taking into account a recommendation from the Office for Tax Simplification (OTS) in 2020. The OTS recommended that CGT rates increase in line with rates of Income Tax, as well as making inherited assets subject to both CGT and Inheritance Tax.

The OTS report added to longer-running concerns that the Government may look to raise more money from CGT. The cut to Entrepreneurs’ Relief (now Business Asset Disposal Relief) in April 2020 also triggered hurried sales of businesses by entrepreneurs.

Bowmore says this has led more individuals to sell assets that might attract even bigger CGT bills in the future, such as buy to let property.

It also warns taxpayers to take professional advice before hastily selling assets in fear of a rise in CGT. It says that too many people do not understand the full tax implications of these decisions and can end up paying more tax than is necessary.

Other options that many people selling assets overlook include:

  • Making full use of your pension. Even if you plan to hold an investment for the short term consider buying that asset inside a pension wrapper to make any gains on sale CGT-free
  • Investing a gain from the sale of an asset into an EIS investment, deferring the CGT bill until that investment is sold
  • Sell all of an asset across more than one tax year and use each year’s £12,300 tax-free allowance

Mark Incledon, CEO of Bowmore Wealth Group, comments: “These numbers show how the Government has already been targeting CGT for increased tax revenues over the last few years – in particular through a greater tax on entrepreneurs selling their businesses.”

“The concern would be that the Government continues to use this route to fill its deficit.”

* Year end February 28 2022. Source: HMRC

** Source: Nationwide

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