Capital Gains Tax Receipts See Significant Growth

With the apparent increases in Capital Gains Tax Receipts proposed for the October 2024 Budget, it would appear that the revenues from tax are already being increased by the cutting of the tax rate. This reduction in the residential property transaction rate from 28% to 24%, effective April 6, 2024, would appear to have had such an increase in revenue.

In the period between April 1 and August 31, 2024, HMRC raked in £854 million in Capital Gains Tax receipts, up significantly from the £778 million received during the same period last year. The increase may also be linked to the hot property market, amid speculation over interest rate cuts that is overdriving property sales. Alternatively, many property owners may be racing to sell their assets ahead of any potential tax rise in the coming Budget.

Shifting Trends in Capital Gains Tax Receipts

This increase in Capital Gains Tax receipts is part of a wider trend seen in recent years, especially those who were formerly liable to the highest rate of CGT of 28% for residential property and carried interest gains. Figures obtained by RSM UK show that the number paying the highest rate of CGT rose from 50,000 in 2016/17 to 120,000 in 2022/23, with total payments rising from £1.58 billion to £3.36 billion.

This is not an isolated phenomenon limited to only property sales, as the private equity chiefs have faced a tax of 28% on carried interest too. Analysis suggests that an estimate for this suggests that about 2,000 taxpayers paid £580 million in CGT receipts concerning carried interest in the year 2017/18, once more demonstrating that a few individuals contribute to a large part of the total collection of CGT.

Inflation and Rising Mortgage Costs Drive Property Sales

Notably, only a part of this rise in Capital Gains Tax receipts is due to frozen tax bands and allowances failing to keep pace with inflation; landlords with increased mortgage costs and reduced availability of tax deductions may also be selling rental properties in view of the interest rate rises in recent times.

The Capital Gains Tax receipts over the next couple of months should be tracked, also with the evolution of the property market and unfolding effects of the October Budget: will there be a rush to offload rental properties or will other factors come into play? This could give crucial insight into how these tax policies have been shaping property transactions and revenues of CGT in the next few months.