New data published today by HMRC has revealed that the number of people paying capital gains tax increased by 20 per cent in the 2021/22 financial year.
Some 394,000 taxpayers paid the levy, which is levied when someone sells something and gains financial benefit from it – usually a second home or investment.
The total amount of CGT liability was a record £16.7bn, up 15 per cent on the previous record year.
Overall, the number of people paying the tax has more than doubled in 10 years and experts say this number will only increase as tax-free allowances have become much less generous.
Capital gains tax receipts rose to a record £16.7bn for the 2021/2022 tax year
CGT is levied on gains from assets ranging from stocks to second homes, buy-to-rent properties and personal effects.
And it’s not just paid for by the super rich. While nearly half (45 per cent) of total paid CBT is paid for with huge profits of £5 million or more, 214,000 people paid for it with profits of up to £25,000.
> Read our guide to capital gains tax
How does the capital gains tax work?
CGT is paid on the profit when you sell an asset. The profit is the amount it sells for less what you paid for it or what it was worth when it was bought.
HEATHER ROGERS ANSWERS YOUR TAX QUESTIONS
Depending on wealth, exemptions are available and each person has a deduction for capital gains tax.
This used to be set at £12,300 per annum, but was reduced to £6,000 in April 2023.
It will be further reduced to £3,000 in April 2024.
As a result, Daniel Hough, financial planner at RBC Brewin Dolphin, thinks CGT will catch even more people.
He says: “The increase in the number of people paying wealth tax is likely to continue if the annual exemption deduction is reduced.”
Higher and additional rate taxpayers pay 28 percent tax on real estate gains and 20 percent capital gains tax on investments and other taxable assets.
For base rate taxpayers, if your taxable profit plus your total taxable income falls within the base tax bracket of £12,571 to £50,270, the CGT rate is 18 per cent on residential property and 10 per cent on other gains.
What does the tax mean for landlords of owner-occupied homes?
When you start selling your property for rent, capital gains tax must be paid on any profit.
It applies to any property that is not your primary residence – your private primary residence – so it includes private second homes as well as homes that are rented out.
The data surrounding CGT when it comes to property sales shows that 139,000 taxpayers report 151,000 home sales in the 2022/23 tax year, generating a total liability of £1.8 billion, which is much greater than in the tax year 2020/21.
This data suggests that there is an exodus of landlords from the real estate market as the tightening of buy-to-let tax laws makes them a less attractive investment.
There are two exemptions you can get on your CGT bill, but they’re both less generous than ever.
Firstly, there is a CGT regime specifically for ‘casual’ landlords, who once lived in a property before renting it out.
If a landlord rents out a property that was once their primary residence, CGT will only apply to the amount the property increased in value while they were not living there.
Tax hit: Landlords – as well as second home owners – usually have to pay capital gains tax if they make a profit on the sale of a property
Another CGT allowance is ‘rental deduction’, which has also been reversed this year.
Previously, when a landlord sold his former home after it had been let, up to £40,000 of his profit could be exempt from capital gains tax.
Couples can benefit from a waiver of up to £80,000.
But under the new rules, only landlords who live in the building with their tenants are now eligible.
What can you do to prevent the sting?
There are a few things you can do to limit losses from CBT. Think of using your tax-free allowance every year before you lose it and placing your assets in tax wrappers such as an Isa.
You must also place as much of your investment portfolio as possible in an ISA. Disposal of assets in an Isa stock or pension fund is not subject to CGT.
Laith Khalaf, head of investment analysis at AJ Bell says: ‘The easiest way to avoid paying capital gains tax on your equity holdings is to hold them in an Isa, although this is clearly not possible if the asset you’re investing in is a real estate property. , on which you also receive an additional 8 percent capital gains tax on any profit you make.’
Rachel Griffin, tax and financial planning expert at Quilter says: ‘As we look to the future and the prospect of these numbers getting even bigger, it becomes critical that taxpayers use the tools available to them. – such as maximizing Isa and pension benefits and using other products such as single premium investment bonds.’
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