Capital gains tax (CGT) receipts rose sharply in October ahead of the Budget, the latest data from HM Revenue & Customs shows.
These amounted to £251m – a 44% increase on the £174m recorded during the same month last year. Similarly, September receipts were up by almost a third from the £192m recorded in 2023, illustrating a sharp jump.
During the run-up to the 2024 general election, chancellor Rachel Reeves said Labour had “no plans” to raise CGT. However, this didn’t stop intense media speculation that the government would raise rates significantly, or even equalise them with income tax, leading to an upswing in selling activity from investors hoping to lock in lower CGT rates.
Many across our industry were expecting far more dramatic changes but, as it happened, the fierce hikes forecast didn’t materialise. In the end, the basic rate rose from 10% to 18%, and the higher rate from 20% to 24%. This aligned with CGT rates on residential property and came into immediate effect.
In terms of timings, shareholders don’t have to pay CGT until the 31 January deadline, whereas residential property CGT must be reported and paid within 60 days of sale. This means most of October’s receipts would have been generated from sales of residential properties that aren’t the owner’s main home.
The spike in activity for September and October supports the theory landlords and the owners of second or holiday homes were indeed selling up in advance of Budget Day. The provisional estimate of the number of UK residential transactions in October was 111,100. This was 23% higher than in October 2023 and 10% higher than the previous month of September, according to HMRC data.
Separate data from Zoopla suggests 2024 will be a bumper year for housing sales. The property portal estimates there are currently 306,000 homes with a sale agreed so far this year – this works out at 62,000, or 26%, more homes than a year ago. Anticipated changes to CGT won’t be the only factor driving this increase but will likely have played a part.
What now remains to be seen is how people treat other assets. Will they look to retain them for longer to avoid triggering gains that may be liable to CGT? In my view, investors’ actions are unlikely to be impacted dramatically given the relatively small-scale changes being implemented, but we’ll see if that turns out to be the case.
What we can say with near certainty is that there will be a significant rise in the numbers of people pulled into scope for paying CGT year on year.
HMRC’s most recent data shows there were 369,000 taxpayers liable to pay CGT in the 2022/23 tax year – up 36% from 2019-20 when 272,000 were affected. And it’s estimated that, in 2024/25, numbers will swell to around 500,000.
The government is expected to raise £90m this tax year, according to an impact summary published in a Budget policy paper. This is expected to rise to £1.44bn in 2025/26 and generate an additional £2.49bn by 2029/30.
This is in part thanks to the CGT changes, but also follows previous Budgets, which have seen the tax-free allowance for CGT cut from £12,300 down to £3,000 over just two tax years. At the same time, increases in property and stock market values mean more people, not just the super wealthy, will realise gains that exceed the £3,000 allowance.
Our own research commissioned by the Lang Cat reflects this data and shows the vast majority of advisers feel CGT is of much greater concern to them and their clients compared to two years ago.
It means advisers will be increasingly called upon for their expertise to support clients to use all the allowances available to them, such as Isas and pensions. But also reassessing portfolios strategically to consider the timing of asset sales to utilise annual allowances affectively or holding assets for longer periods.
Advisers will need access to essential tools that provide accurate and timely information to enable them to recommend the best solutions.
Michael Edwards is managing director of FSL
Comments