The UK Government made a record haul for Capital Gains Tax (CGT) in the 2020/21 tax year, raising a total of £14.3bn from £10.06bn (2019/20) on just 323,000 taxpayers, latest figures reveal.
The average bill was therefore a staggering £44,272 at a rate of tax of just under 18%.
Shaun Moore, tax and financial planning expert at Quilter said: "Three things are driving this. Firstly, as the government has pointed out, there were murmurings of CGT rates being brought in line with income tax rates, making it much more appealing to dispose of assets ahead of any change.
"Clearly this recommendation from the Office of Tax Simplification did not get enacted, but it did enough to spook people to bring forward their disposals ahead of any potential tax grabs. This recommendation is also likely to be entirely shelved until the next government decides what it is going to do with income tax rates as these seem firmly on the chopping block in order to help consumers.
"The more prominent issue is perhaps the fiscal freeze introduced by Rishi Sunak in the middle of the pandemic. Last year the CGT Annual Exempt Amount was frozen at £12,300 until 2026 at the earliest, and with inflation spiking and allowances following drastically behind, more people will be dragged into the scope of CGT.
"Finally, the reduction in lifetime limit for Business Asset Disposal Relief from £10m to £1m continues to do its job too, with just under 10% of the overall take coming from disposals that qualified for this relief. The amount of gains and the tax charged at the 10% BADR rate has decreased by 60% in just one year, highlighting the number of people getting stung by the lifetime limit reduction.
He added: "Despite the challenging macroeconomic backdrop, asset prices have still risen since this data was collected and as such this tax take is unlikely to stay a record for long.
"Inheritance tax has been getting more attention than CGT in the recent Conservative leadership contest, but the tax raised from CGT dwarfs it in comparison. While tax rises do seem off the cards for now, it would not be a surprise to see CGT targeted if the next Prime Minister and Chancellor believe they need to raise tax revenues without impacting the majority of the population."
Andrew Tully, technical director at Canada Life said: "A fair proportion of this marked upturn in receipts can be explained by the increase in rate for gains on disposals of property to 18% and 28%, together with the introduction of CGT for offshore trusts and non UK resident individuals on the disposal of interests in UK land and property with effect from 6 April 2019.
"With the £12,300 annual CGT exemption frozen until 2026 and inflationary increases in the value of assets, the amount raised in CGT is likely to continue increasing. The OBR is predicting it will reach an incredible £20.7bn by 2026.
"There is a considerable amount of planning which can reduce CGT bills. The simplest is holding assets within tax-efficient wrappers such as pensions and ISAs, rather than as direct investments.
"Investment bonds also have a key role to play where other tax advantaged investment wrappers have been fully utilised, being able to shelter gains made in the underlying funds until withdrawals in excess of the cumulative 5% allowance or full surrenders are made. Where gains do arise, these are subject to income tax, not CGT.
"People could also consider transferring assets into joint names if married or in a civil partnership, or spreading disposals over different tax years."
History of CGT tax receipts
Tax year CGT tax receipts (£m)
2011/12 3,847
2012/13 3,836
2013/14 5,591
2014/15 7,014
2015/16 8,513
2016/17 7,802
2017/18 9,002
2018/19 9,730
2019/20 10,068
2020/21 14,314
While Mark Stemp, partner at audit, tax, risk and advisory firm Crowe said: "Record amounts of gains were reported as well as record amounts of tax was paid for the 20/21 tax year. This is no surprise in a financial climate where housing prices continue to be going up and there was talk of tax rate increases which may encourage disposals at the current perceived low CGT rate.
"Residential landlords have been impacted by a number of measures including income tax increases due to the restriction in loan relief which have resulted in some re-balancing their portfolios and triggering gains sooner than they otherwise would have.
"The Conservative leadership race means that an increase in taxes is unlikely for the remainder of the term of the government. This will be re-assuring news to those who are soon to be selling assets, as we often find that news of rate increases triggers earlier rushed disposals to secure a lower tax rate."
Lucy Woodward, Tax partner at accountancy firm Saffery Champness, also commented: "The year of the Covid pandemic, 2020-21, represented a perfect storm of factors, including policy changes and trends in taxpayer behaviour, that were always likely to have the effect of driving up the country's Capital Gains Tax bill. From the reduction in the lifetime limit for Entrepreneurs Relief in April, to the massive spikes in property transactions in the second half of the year, including a 45% increase in disposals, to taxpayers pre-empting a potential alignment of CGT with Income Tax rates as recommended by the Office for Tax Simplification in their CGT report in November.
"Many people with disposable income or savings will have seen the market crash at the outset of the pandemic as a buying opportunity, perhaps making a speedy exit once the global economy began to recover - potentially incurring CGT liabilities. Equally those who saw the signs of the approaching tech crash may have taken the decision to lock in any gains made and transfer into less volatile holdings, albeit while taking a potential tax hit.
"The pandemic coincided with significant changes to the tax regime for landlords, including the end to BTL mortgage relief and reforms to Lettings relief, which had already encouraged many landlords to exit the market, a trend which will likely have continued in 2020-21, triggering CGT bills in the process, which for the first time had to be reported and paid within a 30-day window. The massively reduced timeline for reporting and paying CGT on property disposals, during a period of enormous disruption generally, made it challenging for some sellers to complete their CGT return accurately, taking into account all expenses incurred, leading to late-payment penalties and taxpayers having to rectify the information in their annual tax return.
"The figures also stand as further testament to the effects of fiscal drag as the value of assets like property and shares continued to climb while peoples' allowances and tax bands were fixed, and will remain so until 2026 under current plans.
"What's interesting is that during this period, as the costs of running the Covid support schemes mounted up and people grew increasingly concerned about public debt, the debate turned towards the possibility of a Wealth Tax - when in reality, the pandemic had for all sorts of reasons created an environment where capital was already contributing a great deal more to the UK's tax revenue than it had ever done previously. The lesson, therefore, that politicians and designers of tax policy may choose to take from these figures, is that given the right circumstances, there can be effective and creative ways of increasing tax revenue without raising tax rates or introducing new taxes, which may offer possible avenues for tax policy in the face of rising inflation and potentially stagnant growth."
