According to data released on Thursday, Britons paid an unprecedented £16.7bn in capital gain tax during the financial year 2021-22 due to rising asset values and increased house sales.
HM Revenue & Customs figures showed a 15% increase year-over-year in the amount of CGT due to Treasury. The amount of CGT due to the Treasury increased by 15 per cent in one year, according to figures from HM Revenue & Customs.
HMRC stated that the sharp increase in tax revenue was primarily due to increases in asset value and a large number of residential property transactions. However, other factors also contributed to the record-breaking figure.
The Office for Tax Simplification (a statutory body that has since been disbanded) had suggested in its 2020 report the possibility of CGT increases if taxpayers sold assets. Rishi sunak commissioned the report when he served as chancellor. However, its recommendations weren’t implemented.
Richard Jameson, a partner at Saffery Champness accountancy firm, said that the record numbers suggested “above and beyond”. . . The Treasury can make just as much money from the threat of tax increases as they could by increasing taxes themselves”.
The OTS report recommends that taxpayers who own assets be more cautious about a greater alignment between capital taxes and income tax. . . Many will have taken pre-emptive measures to dispose of assets,” he said.
HMRC data shows that in 2021-22 the number of residential property sales subject to CGT increased from 98,000 to 153,000, compared with Covid-19’s impact in 2020-21.
Residential property gains for 2021-22 were £9.1bn and £1.8bn , respectively. This is up by 59 and 60% respectively from 2020-21.
The official data published for 2022-23 on Thursday showed a continued trend in CGT taken from residential properties, with the total gains and liabilities staying unchanged at £9.1bn (£9.1bn) and £1.8bn (£1.8bn).
Rachael Griff, chartered financial advisor at Quilter, an investment firm, said that the data released on Thursday showed “an exodus from the property market” as tighter tax laws had a negative impact on the demand for buy-to-let.
Since 2020, landlords who buy to let properties are no longer able deduct mortgage costs from their rental income in order to calculate their taxable profits. They receive a 20 per cent tax credit on the mortgage interest they paid.
The sharp reduction in the entrepreneur’s tax relief from £10mn to £1mn in March 2020 is another factor that may have contributed to this record.
As the annual CGT exemption is reduced, it’s likely that the number of people who pay the tax will continue to rise in the coming years.
Chancellor Jeremy Hunt had announced last autumn in his Autumn Statement that the allowance was to be reduced from £12300 to £6,000 for this year. In April 2024, it will again be cut in half to £3,000.
Laith Khlaf, the head of investment analyses at investment platform AJ Bell said that CGT was “often characterized as a tax for rich people”. . . The net will be cast much wider and many more small investors are likely to get trapped.
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