Capital gains tax jumps 24.6% as south-east house prices tick up

The capital gains tax (CGT) paid by individuals has jumped 24.6% in the last year to £6.9bn.

The previous amount of CGT taken by HMRC in 2013/14 was £5bn, and the Treasury is benefiting from the increasing asset values and buy-to-let investors.

“The reported rise in capital gains tax liabilities was likely to be driven, by rising house prices and larger volumes of sales,” said Lucy Brennan, partner at Saffery Champness.

This is the second large rise in CGT yields in the past two years, and comparable with HMRC taking £3.5bn in 2012/13. The higher tax rate of 28% was introduced in June 2010 in George Osbourne’s post-election Budget to increase the overall tax take, the basic capital gains tax rate was previously at 18%.

At £6.9bn, capital gains tax for 2014/15 accounted for 1.4% of all taxes, compared with 1.1% in 2013/14. During the same period, total tax collections increased by only 4.4%. Also, more taxpayers were affected, 242,000 in 2014/15 compared with 214,000 in 2013/14. Last year George Osborne launched an attack on buy-to-let landlords in the Autumn statement with tax hike and CGT change.

George Bull, senior tax partner, RSM, said: “With the average capital gains tax bill running at around £28,500, this ‘Cinderella’ of taxes will not go unnoticed by those who have to pay it.”

With rising asset values over the years, especially in property, more buy-to-let investors are being dragged into the CGT net since the higher rate.

Mark Giddens, partner and head of the London private client team, UHY Hacker Young, said: “As house prices rise, more and more buy-to-let investors are finding that their property sales are leaving them exposed to significant CGT bills.”

London and the South East now represent 52% of all CGT paid in the UK, while Scotland, Wales and Northern Ireland combined represent only 8%, added UHY Hacker Young.

Giddens continued: “In recent years, it hasn’t been uncommon for buy-to-let investors to see their properties appreciate by £50,000 or £100,000 in a relatively short period in London and the South East. Those gains would have been taxed at 18% a few years ago, but the 2010 changes mean that more of them are now taxed at 28%.”

From the 2016/17 tax year, the 18% and 28% rates have been reduced to 10% and 20% respectively, except for gains on residential property, which are still taxed at the previous higher rates.

Brennan concluded: “With the Autumn Statement on the horizon, the Chancellor is likely to look to mitigate against any potential shortfall in the public coffers and capital gains tax reliefs, along with pensions relief, looks to be a possible target for reform – potentially under the guise of another crackdown on abuse.”