A little-known rule change, alongside a spike in buy-to-let investors and business owners selling assets for fear of potential tax rises, has boosted capital gains tax receipts this year.
The CGT take hit £72m in October, compared with £4m in the same month last year, figures from HM Revenue & Customs showed. CGT raised £9.5bn in the 2018-19 tax year. The majority is paid annually between January and March.
Since the start of the tax year in April, capital tax gains receipts have risen sharply every month, with each monthly total higher than the corresponding month last year. In April, CGT raised £7m, rising to £69m in September. In 2019, the corresponding monthly totals in this period ranged between £4m and £8m.
This year’s rise is partly explained by a change in the deadline by which property owners who incur capital gains must report and pay the tax, advisers said.
Since April, UK residents who sell or gift UK residential property and make a taxable gain have been required to report and pay any CGT owed within 30 days of completing the transaction. Before this they had up to 22 months to do so.
The increased tax take has also been boosted by people selling property and business assets, driven by concerns that CGT rates are likely to rise in the future, tax experts said.
Gordon Andrews, tax and financial planning expert at Quilter, said his firm had seen increased interest from clients wanting to sell assets now as a result of the public debate on CGT. “It’s natural people are taking pre-emptive action [to realise gains],” he said.
“A lot of this will be buy-to-let landlords unloading their properties,” said Sean McCann, chartered financial planner at NFU Mutual.
A combination of factors was tempting many buy-to-let investors into cash he added. This included a recent review commissioned by chancellor Rishi Sunak, which recommended increasing CGT rates to align them closer to income tax and reducing the annual exemption from £12,300.
If enacted, this could see the amount of tax paid on gains on residential property rise from 18 per cent for basic rate taxpayers or 28 per cent for higher or additional rate taxpayers to 45 per cent — the highest income tax rate.
In addition, restrictions to the tax relief available on buy-to-let landlords’ mortgage interest and fears that house prices may fall as unemployment increases were also playing on people’s minds, Mr McCann said.
“The prospect of an increase in the headline capital gains tax rate, in the short-to-medium term, seems quite likely, following the Office of Tax Simplification initial report and recommendations,” added Gary Heynes, private client partner at RSM, an accountancy firm.
Tom Evennett, head of private client services at EY, said the increase in receipts was also likely due to a buoyant property market, which has been boosted by a stamp duty holiday.
“While many gains will be relieved from CGT via private residence relief, this relief has been narrowed in recent years, reducing the availability of the relief in periods of absence from the property,” he added.
Meanwhile, the tax authority is reminding people who sold residential property in 2019-20 — before the 30-day reporting deadline rule change came into force — to pay any CGT via their tax return by January 31 2021.
Karl Khan, HMRC’s interim director-general for customer services, said: “The 2019-20 tax year is the last year UK residents will be required to pay the capital gains tax for the sale of properties as part of the self-assessment process and we want to make sure they are aware of the new requirements.
“We’re making it easier for customers to pay any tax that is owed. UK residents, including property developers and landlords, should now use the online service to make any capital gains tax declarations immediately after selling a residential property.”