Latest statistic released by HM Revenue & Customs (HMRC) show that a record £9.5bn of capital gains tax (CGT) was collected in the 2018/19 tax year – this represented a 6% increase. The statistics can be found here.
Interesting points that can be extrapolated are:
- The overall CGT liability in 2018/19 was only realised from 276,000 taxpayers on total gains of £62.8bn. These represented a 4% decrease and a 7% increase respectively;
- 40% of the total receipt was realised from taxpayers who realised a capital gain of £5m plus – this group representing less than 1% of the above figure (taxpayers that paid CGT in the year);
- Capital gains entrepreneurs’ relief was claimed by 46,000 of the 276,000 tax payers on £27.7bn of capital gains (therefore representing £2.7bn of the £9.5bn overall receipts – c28.5%) – this represented a 13% increase on the previous year and highest amount of tax collected on gains upon which the relief had been claimed since the relief was introduced in 2008;
- The gains upon which capital gains entrepreneurs’ relief was claimed, and the CGT realised from such gains were attributed to a small proportion of CGT payers, on sizeable gains.
So what do I think we can take from these statistics:
- Given the low number of CGT taxpayers that claim capital gains entrepreneurs’ relief, coupled with the amount of the overall CGT take to which that CGT relates, it isn’t a surprise that the lifetime limit was lowered recently (from £10m to £1m). However, a complete abolishment of the relief would have only resulted in an increase to the CGT take in the year of £2.7bn. Would the removal of incentives around the relief for entrepreneurs cost the Treasury more than the £2.7bn? It is very plausible. However, with an increase in CGT rates (which I anticipate), the increase in CGT take that a removal of the relief would result in would increase, weakening this point;
- Overall the CGT take is low – representing c1.5% of the total tax take. My recent comments about inheritance tax (here) similarly apply to CGT. The tax is emotive and used as a political and media ‘football’ (albeit in a slightly different sense when comparing to inheritance tax), however the receipts don’t suggest that this is warranted. Like with inheritance tax, the fact that the CGT receipts represent such a low proportion of overall tax receipts, and given the relatively small proportion of the electorate that it impacts, it seems like an easy political win to implement measures to increase the receipts. This is something I’d expect to see in the next Budget;
- A further point relating to the overall low contribution of CGT is the HMRC administration cost that goes into collecting the tax. Is it sustainable to have such an onerous system to collect such a low amount of overall tax take – does this in itself raise the question, if the tax is to continue in something like its current form, does the tax take need to increase?
- The CGT take does not seem to have been impacted by the fact that non-UK tax residents are subject to UK CGT on residential property (in the year in question – since 6 April 2019 non-UK tax residents have also been subject to UK CGT on non-residential property);
- The statistics say nothing of capital gains investors’ relief. This is not particularly surprising given that these statistics related to a year prior to the recent reduction of the entrepreneurs’ relief lifetime limit, and thus the draw was to entrepreneurs’ relief. However, this will likely change going forwards as unlike for capital gains entrepreneurs’ relief, the lifetime limit for capital gains investors’ relief (that also provides a 10% CGT rate on qualifying gains) has not been restricted.
Steve Maggs, Tax Partner