The UK’s Capital Gains Tax (CGT) bill has broken the £15bn barrier for the first time ever, with £15.3bn collected in the year to October 31 2022*, up 27% from £12bn in the previous twelve months, says Growthdeck, the private equity investment firm.
Ian Zant-Boer, CEO of Growthdeck, says that the dramatic increase in CGT bills in the UK has been partly driven by an increase in taxes imposed on the sale of businesses by successful entrepreneurs. In 2020 the Government reduced the lifetime allowance of Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief) from £10m to £1m. This meant that entrepreneurs selling off business assets have incurred greater tax liabilities as a result of cuts to the relief.
The rise in CGT bills is also due in part to large numbers of buy-to-let investors selling off properties to capitalise on high property valuations, as house prices soared at the end of the COVID pandemic.
Ian Zant-Boer, CEO of Growthdeck, says: “The UK is paying more CGT than ever. Unfortunately, entrepreneurs will have accounted for a significant proportion of the increase in those bills.”
“It is argued that having low CGT bills on the sale of businesses by entrepreneurs rewards them for having taken a high degree of personal risk to benefit the economy by creating wealth and jobs.”
South-West London hit with largest CGT bill of any area in the UK
Growthdeck’s research also reveals that, of 121 areas included in the study, residents in South-West London have incurred the largest CGT bills in the UK – £1.3bn in 2020/21.**
In second place is West London, with taxpayers paying £1bn in CGT bills, and North-West London in third place, with £530m. Inner London accounts for 24% of all CGT paid across the UK over the last year.
Ian Zant-Boer says: “Individuals in these areas that have paid the highest CGT bills are most likely to need help managing their tax exposure if they have large investment portfolios.”
“One of the best ways to mitigate CGT exposure is to diversify assets into investment schemes like the Enterprise Investment Scheme.”
The Enterprise Investment Scheme (EIS) is a venture capital scheme that offers significant tax breaks to individual investors who invest in EIS-qualifying companies. EIS tax reliefs include up to 30% income tax relief, tax-free growth, and a “carry back” facility, which allows an investor to offset taxable gains from the previous year.
Importantly, EIS allows investors to not pay CGT on any gains realised after three years, and to defer capital gains tax due on the sale of another asset by re-investing the gain in an EIS-qualifying company.
Ian Zant-Boer says: “Not only does investing in EIS allow individuals to reduce their CGT bill, but it also offers the opportunity to support growing UK businesses. The opportunity to invest in innovative, fast-growing companies means many wealthy individuals see EIS investments as a core part of their investment portfolio.”
UK CGT bills jump to record £15.3bn in past year
Top 10 UK areas with the highest CGT bills
* Source: HMRC, Year end 31st October
** Source: HMRC, Year end 5th April