Inflation has naturally been a key driver behind a number of tax increases in recent years, as asset values soar and bring more people into the tax thresholds.
CGT receipts are likely to continue rising in the wake of the reduction of the annual exemption for CGT from £12,000 to £6,000, which came into play as of April 6 2023.
The full effects of this change may not be seen in CGT figures until April 2024, by which point the exemption will have been halved again to £3,000 per year.
The annual exemption has long served to exclude the requirement to report modest gains to HMRC.
For those expected to pay tax on what are relatively minor sums, seeking the advice of a tax specialist may simply not be financially viable.
With CGT from the past 12 months totalling £18bn, this boost in cash may seem like good news for the Treasury, with the Office of Budget Responsibility predicting that CGT will bring in £26.1bn by the 2027-28 tax year. However, the reality is unlikely to prove so straightforward.
CGT has traditionally been viewed as a wealth tax, typically paid by those with larger investments and valuable assets and, crucially, access to advice to report taxable gains to HMRC.
But making gains of say £6,500 on an investment is not the preserve of only the financial elite. Instead, hundreds of thousands of new taxpayers will now be liable to pay CGT.
The overwhelming majority will do so through self-sssessment tax returns, while others may use HMRC’s real-time CGT service.
However, this makes the (not inconsiderable) assumption that everyone who will now be liable to pay CGT will be aware of that fact. For example, many taxpayers may be unaware that gifts of a property or shares, for example, to family members can be subject to CGT.
Processing this rising number of tax returns stands to create a huge new administrative burden for HMRC. It might rise to the challenge, but the prevailing evidence does not inspire much confidence. Resources across government departments are thinly stretched and HMRC is no exception.
Only two months ago in March, the heads of 10 leading UK professional bodies, a number which tellingly included the Chartered Institute of Taxation, penned an open letter to the chancellor imploring him to prioritise improving HMRC’s service levels in the spring Budget.
