CGT receipts set for record breaking 100% increase in four years

HMRC has published its monthly tax and national insurance contributions (NIC) receipts and we now have details of how much the Treasury has received in the 11 months to February 2023. With one month left in the current tax year, it’s clear that individuals have never paid more tax with income tax, national insurance, capital gains tax and inheritance tax receipts all higher now in this 11-month period than the total for the entire year before.

The biggest increase in personal tax receipts by far is from capital gains tax (CGT). In the 11 months to February 2023, CGT generated receipts of £17.4bn. In the year to March 2022, that figure stood at £15.3bn, representing a 14% increase in CGT receipts.

That increase is higher than every other major tax in the last year. Only newly introduced taxes, such as the energy profits levy, and air passenger duty (APD) have grown at a faster rate. The increase in APD receipts is understandable given they were depressed in previous years due to the pandemic. The rise in CGT receipts however is not just a one-off, but part of a much more dramatic increase in recent years.

Between the 11 months to February 2019 and the 11 months to February 2023, CGT receipts have increased by 95%, more than any other tax in the same period. If the CGT receipts for March 2023 continue this trend for this financial year, we can expect CGT receipts to have approximately doubled in four years.

The CGT gravy train may however be coming to a juddering halt. This huge increase in CGT receipts has been driven by payments from a small percentage of taxpayers. In recent years, around 40% of CGT has been paid by less than 1% of CGT taxpayers. In particular, those generating gains of £5m or more.

It will only take a small proportion of individuals to change their decision making for there to be a dramatic impact on the government’s CGT receipts. The choices of entrepreneurs and business owners will be particularly important as they have made a significant contribution to CGT receipts in recent years.

This has been driven by fear of CGT rates going up, with concerns CGT could be more closely aligned with income tax rates, and with the spike in deal activity in the last couple of years. Given the wider economic challenges, many are reporting that the private equity market has cooled from the high levels of activity in 2021. We may therefore see CGT revenue growth slow in the coming year. Although, the inflation of assets prices and the prospect of the CGT annual exemption halving from 6 April 2023 and halving again from 6 April 2024 could help drive activity to offset this.

The longer-term prospects for CGT receipts will likely be determined by politics and the stances taken by the Conservatives and Labour in their general election manifestos. There has been ominous silence so far, but CGT receipts are highly reactive to potential rate changes. This could be the calm before the CGT storm if changes to the rates are rumoured again.