In the Labour Party’s latest manifesto, the party pledged not to increase National Insurance, Income Tax, or VAT to avoid higher taxes for working people.
However, Capital Gains Tax (CGT) was not mentioned in this pledge, with Chancellor of the Exchequer Rachel Reeves receiving many questions about this omission yet providing no definite answer about Labour’s plans for CGT.
This led to predictions about a possible increase in CGT, which is a tax levied on profits earned from the sale of property, shares, or other assets.
There is currently an annual allowance of £3,000, which was already significantly chopped from the previous allowance of £12,300 in 2020. Profits above this allowance are taxed progressively according to your Income Tax band, with gains from selling property taxed at higher rates.
An increase in tax rates or another annual allowance cut would affect owners of second homes, landlords, business owners, shareholders, and anybody planning to sell valuable assets.
Who pays Capital Gains Tax and how much?
In early August, HMRC shared the CGT receipts for the 2022–2023 tax year. The tax-free gains allowance was £12,300 for this year, but the data still reveals some interesting details.
- Only 348,000 taxpayers made enough gains to pay CGT (about 1% of Income Tax payers).
- A total of £13.63 billion was paid in CGT, plus £0.797 billion from trusts.
- Less than 1% of CGT payers (2,000) were responsible for 41% of all CGT receipts from individuals after making at least £5 million in gains.
- Another 4,000 individuals paid 16% of the total CGT collected after making between £2 million and £5 million in gains.
- More CGT was paid in the previous two years – receipts dropped by 15% between the 2021–2022 to 2022–2023 tax years.
It’s uncommon for tax receipts to fall year-on-year, but the explanation behind these figures is the unrealised Office of Tax Simplification review in 2020. The now-defunct OTS suggested cutting the annual CGT exemption and aligning rates with Income Tax.
This prompted individuals to rush to complete asset sales before any such measures came into force, boosting CGT receipts. However, the OTS proposal to align CGT rates with Income Tax rates was ignored – though the annual exemption was indeed reduced.
Will CGT be changing after the Autumn Budget?
As we wait for the new Labour government’s first Budget, the CGT figures provide a lesson that even hints of raising tax rates can help to generate greater revenue – as speculation encourages individuals to pre-emptively realise gains in an attempt to avoid higher rates.
However, as seen with the abandoned OTS suggestion regarding CGT rates, it may turn out that the government doesn’t actually implement this kind of change at all, so individuals could have held on to their assets and investments for longer.
Current speculation suggests that Reeves could increase CGT rates but reintroduce indexation, so capital gains are only taxed after inflation, but could also increase dividend tax.
We will have to wait to find out what’s to come for CGT when Reeves delivers the first Budget this autumn on 30th October – but whatever happens, any changes could be implemented faster than some may be prepared for.
It’s important to make sure your finances, including savings, investments, and other assets, are all managed with an up-to-date approach to tax obligations.
If you would like to ensure you make the most of allowances and exemptions and reduce your liabilities, you could benefit from speaking to professionals like our accountants in Barnsley.
To learn more about how gbac can help you to manage your accounts both before and after the Autumn Budget, get in touch by calling 01226 298 298 or emailing info@gbac.co.uk.