The £14.4bn liability was realised on £80.6bn of gains and was made by 369,000 taxpayers.

According to the latest CGT figures from HMRC, this represents a 15% decrease in CGT liability and 8% fall in the numbers paying in 2021/22.

HMRC revealed that while liabilities declined, there was an increase in CGT receipts on residential property disposals, which “doubtless arose as buy-to-let investors continued to sell up as mortgage rates soared”, according to Adrian Lowery, financial analyst at wealth management firm Evelyn Partners.

Property investors have also been burdened by a tightening tax and legal environment that has made it more difficult to profit from a property portfolio in the last decade, he added.

HMRC statistics revealed that London and the South East of England accounted for around half of total gains (48%) and CGT liability (50%) in the 2022/23 tax year.

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Meanwhile, it added that most CGT comes from a small number of taxpayers who make the largest gains.

In 2022/23, 41% of CGT came from those who made gains of £5m or more. This group represents less than 1% of CGT taxpayers each year.

Further, as income and the size of gain increased, the number of individual taxpayers decreased. In the 2022/23 tax year, 44% of gains for CGT-liable individuals came from the 11% of individuals with taxable incomes above £150,000, the additional rate threshold for income tax.

 

Reduced allowance = focus on CGT planning

Shaun Moore, tax and financial planning expert at Quilter, said since 1993/94, the number of people paying CGT has surged by an “astonishing” 427%, rising from 90,000 to 369,000 taxpayers. Correspondingly, the tax revenue has “skyrocketed” from £60m to a staggering £14bn.

However, he said the dip in the latest figures “may have been due to a combination of both heightened focus on CGT planning ahead of the allowance change, as well as the lower-than-usual returns on equities in 2022 due to the start of the Ukraine war and other economic challenges, the longer-term increase is stark.”

In the Autumn Statement 2022, the government confirmed the annual exemption for CGT would be more than halved from £12,300 to £6,000 from April 2023, followed quickly by another threshold fall to £3,000 from April 2024. This impacted investors looking to sell shares and other assets, including second homes.

Moore added that as the latest data only accounts for the 2022/23 tax year, before the CGT annual tax-free allowance was slashed, “the amount of CGT paid and the number of taxpayers liable will likely climb much further going forward”.

Turning to the new Labour government, Moore said: “While Rachel Reeves has committed to not raising headline tax rates, she has been tight-lipped on CGT. She has since conceded that tax changes might be necessary in the Autumn Budget to stabilise public finances. 

“If CGT rates were aligned with income tax rates at the next Budget, it could lead to significant short- and long-term repercussions. Without anti-forestalling measures, there could be a rush to sell second properties, temporarily boosting housing market activity and prompting investors to reconsider their portfolios.”

He added: “At this point, no changes have been announced. Therefore, making decisions based on potential future legislation is not advisable unless selling a second home or buy-to-let property is already part of your plan. These figures, however, highlight the potential for increased tax burdens in the future.”

 

Four ways to mitigate a capital gains tax liability

But given the discussions around CGT, Lowery shares these four tips as possible ways to mitigate CGT:

1) Married couples and civil partners

Married couples and civil partners can transfer assets between themselves free of CGT, to maximise use of tax allowances. This means couples can make use of two sets of CGT allowances when selling shares, two sets of ISA allowances to shelter investments from future capital gains and even where some CGT is likely, shifting investments into the name of whichever partner pays a lower tax rate can help reduce a tax bill.

2) Maximise ISA and pension contributions

Disposals of assets in a stocks and shares ISA or a pension fund are not subject to CGT. Subject to other investment decisions, using your annual ISA and pension contribution allowances to increase the proportion of your assets held in these vehicles can be effective planning.

3) Use (and don’t lose) your allowances

The annual exempt amount for CGT does not carry forward from year to year. Therefore, it’s worth thinking about accelerating any disposals that might take you over next year’s allowance. As general practice, reviewing your allowances well before the end of the tax year on 5 April and using them where possible can be very effective tax planning.

4) Consider tax-efficient investments

Some investments can qualify for special reliefs. One of the most important, business asset disposal relief, is for those with a significant stake in a business, but investors can also access CGT relief when buying shares in smaller companies. Options include the enterprise and seed enterprise investment schemes and venture capital trusts. These can be higher-risk investments, and the relief is limited.

This article was first published on Mortgage Solutions‘ sister site, YourMoney.com. Read: Govt coffers from capital gains tax TRIPLE in a decade: Four ways to save