Capital gains tax income to the Treasury has fallen sharply in HMRC’s latest figures, despite the chancellor’s decision to hike the rates in last year’s Autumn Budget.
Capital gains tax (CGT) receipts dropped from nearly £17 billion in 2022/23 to £14.5 billion in 2023/24, and now to just £13.1 billion in 2024/25.
Significantly for chancellor Rachel Reeves, in the first six months of the year, and since her Autumn Budget changes, CGT raked in just £11.8 billion, compared to £13.5 billion during the same period last year.
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Shaun Moore, tax and financial planning expert at Quilter, said: “The government’s decision to slash capital gains tax allowances and hike rates has backfired.
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“The policy may have been designed to raise revenue, but it’s instead prompted behavioural shifts that have dented the tax take.”
In a separate article we look at ways to cut your capital gains tax.
Who pays capital gains tax?
Capital gains tax is charged on the profit someone makes when they dispose of an asset – for example, if they sell it – that has increased in value.
The tax is charged on the gain that is made on the disposal, rather than the amount of money that is received.
For example, if someone purchases a painting for £5,000 and sells it subsequently for £25,000, they are liable to tax on the £20,000 gain they made.
Everyone has an annual CGT allowance, with this tax only charged on gains above this amount. This threshold currently stands at just £3,000 – having been significantly cut in recent years under the previous government.
What changed with CGT in the Budget?
In her Budget statement on 30 October 2024, Reeves announced increases in both the lower rate of CGT paid by basic rate taxpayers (from 10% to 18%) and the higher rate of CGT (from 20% to 24%), which is paid by higher rate taxpayers. These rate increases took immediate effect.
The rates of CGT on residential property remained unchanged. The two rates of CGT on carried interest were replaced with a single 32% rate from 6 April 2025.
The chancellor also announced a two-stage increase in the rate for both Business Asset Disposal Relief and Investors’ Relief, implementing an increase from 10% to 14% from 6 April 2025 and an increase from 14% to 18% from 6 April 2026.
Finally, the lifetime limit for Investors’ Relief would be reduced to £1 million for all qualifying disposals made on or after 30 October 2024, matching the lifetime limit for Business Asset Disposal Relief.
Will Reeves announce a wealth tax in the 2025 Autumn Budget?
The increases in the main rates of capital gains tax, and the two-stage increase in the rate for Business Asset Disposal Relief and Investors’ Relief, were forecast to raise £90 million in 2024/25, rising to £1.44 billion in 2025/26.
But the current figures suggest these forecasts may be wide of the mark.
“This is particularly relevant amid renewed speculation about a ‘wealth tax’,” Moore said, referring to potential tax rises in the 2025 Autumn Budget.
Keir Starmer refused to rule out a wealth tax at Prime Minister’s Questions on 9 July when quizzed by leader of the opposition Kemi Badenoch. A wealth tax is effectively a levy on an individual’s total wealth rather than just their income. It could be applied as a percentage payable by individuals with assets over a certain level.
Campaigners have previously suggested a 2% wealth tax payable by individuals with wealth over £10 million.
But Moore said: “While taxing the wealthiest may sound politically appealing, the CGT experience shows that people will change behaviour or adjust their financial plans to mitigate the tax bills.
“A wealth tax could accelerate the exodus triggered by the abolition of non-dom status – undermining the very revenue it aims to raise.”
