Capital Gains Tax Receipts Fall 8%: What This Means for UK Investors and Business Owners
New data from HMRC has revealed a notable shift in the UK's tax landscape. Figures show that Capital Gains Tax (CGT) receipts fell by 8% in the 2023/24 tax year, a decrease of over £800 million compared to the previous year's record high.
At first glance, a drop in tax collected might seem like positive news for taxpayers. But in the world of economics and policy, numbers tell a deeper story. For UK investors, business owners, and anyone holding chargeable assets, this shift is a significant piece of CGT news that warrants close attention. It’s not just a statistic; it's a signal about market behaviour, government policy, and your own future financial planning.
Why Have CGT Receipts Fallen?
A decline of this scale doesn't happen by accident. Several key, interconnected factors are likely at play:
1. The Shrinking Annual Exempt Amount (The #1 Driver)
This is the most direct cause. The tax-free CGT allowance was slashed from £12,300 in 2022/23 to just £6,000 in 2023/24, and then again to £3,000 for 2024/25. While this might intuitively suggest more people paying tax, the opposite often occurs in the short term. Savvy investors responded by realising gains before the drastic cuts took effect. The record-high receipts of 2022/23 were likely a "pull-forward" effect, with individuals and trustees using their larger allowance while they still could. Now, with a much smaller allowance, there are simply fewer gains large enough to trigger a tax liability for many people.
2. A Cooling Property Market
Residential property is a major contributor to CGT receipts, primarily through the sale of second homes and buy-to-let investments. A cooler housing market in 2023, with slower price growth and fewer transactions, means fewer and smaller taxable gains were realised. For some landlords, disposals may have even resulted in losses, which can be offset against other gains.
3. Strategic Investor Behaviour
In an environment of economic uncertainty and lower allowances, investor behaviour changes. People are:
Holding Assets Longer: The incentive to "crystallise" gains annually to use the allowance has reduced now that the allowance is so minimal.
Utilising Tax-Wrappers More: The fall highlights a surge in using ISAs and pensions, where gains are completely free from CGT. The £20,000 ISA allowance has never been more valuable.
Being More Tactical with Losses: Investors are more actively managing portfolios to realise losses to offset any gains, reducing their net taxable position.
What Does This Mean for You? Key Implications
Beyond the headlines, this shift in capital gains tax receipts in the UK has real world implications for your financial strategy.
For Investors:
The Era of Tax-Free Gains is Over: The £3,000 allowance is negligible for serious portfolios. CGT planning is now essential, not optional.
ISAs are Your Best Friend: Maximising your annual ISA subscription is the single most effective way to shelter investment growth from tax. Front-loading contributions at the start of the tax year is a smart move.
Loss Harvesting is Key: Regularly reviewing your portfolio to strategically realise losses (to offset gains) has become a core part of portfolio management.
For Business Owners & Company Directors:
Business Asset Disposal Relief (BADR): With general CGT allowances down, the value of the 10% tax rate under BADR (Entrepreneurs' Relief) for qualifying business sales has increased in relative terms. Ensuring you qualify is critical.
Extracting Profits: The efficiency of taking dividends (taxed at dividend rates) versus realising capital gains from share sales needs careful calculation, as the playing field has shifted.
Succession Planning: For owners considering selling or passing on their business, the reduced allowances make early, multi-year planning vital to minimise family tax burdens.
For Policymakers & The Future:
A sustained drop in CGT receipts against a backdrop of high government borrowing will be closely watched. It puts CGT squarely in the spotlight for future fiscal events. While the allowance cuts have already happened, the government may look at other levers, such as:
Further tinkering with reliefs (like BADR).
Aligning CGT rates more closely with Income Tax rates (a perennial topic).
Reviewing the treatment of assets passed on inheritance.
The message is clear: the direction of travel is towards greater taxation on capital gains. Proactive planning is your best defence.
Your Action Plan: Stay Informed and Proactive
Don't Assume: Don't assume you have no liability. With a £3,000 allowance, even modest gains on shares outside an ISA or on a second property can be taxable.
Document Everything: Meticulous records of purchase prices, costs of improvement, and sale proceeds are non-negotiable.
Seek Specialist Advice: The complexity of CGT, especially when interacting with other taxes and reliefs, means professional advice is worth its weight in gold. A good adviser will help you structure disposals, use losses effectively, and plan for the long term.
Stay Ahead of CGT Changes
The 8% drop in CGT receipts is a powerful market signal. It confirms that the landscape for investors and business owners has changed fundamentally. Relying on old strategies or hoping for a reversal in policy is a high-risk approach.
At Boobooks Accounting, we make it our business to translate these complex fiscal trends into clear, actionable advice for our clients. We help investors and business owners navigate the new reality of CGT, ensuring their strategies are robust, compliant, and tax-efficient.
Don't let shifting tax policies take you by surprise.
Stay ahead of CGT changes.