Capital Gains Tax liabilities on residential property sales rise to £1.97bn in 2022/23

In the 2022 to 2023 tax year, the total Capital Gains Tax (CGT) liability was £14.4 billion for 369,000 taxpayers, realised on £80.6 billion of gains, according to HM Revenue and Customs data released today. This represents decreases in CGT liability and number of taxpayers of 15 per cent and 8 per cent respectively from the 2021 to 2022 tax year.

Although total CGT liability decreased in the 2022 to 2023 tax year, liabilities realised on residential property disposals increased slightly from £1.846billion to £1.971billion.

Adrian Lowery, Financial Analyst at wealth management firm Evelyn Partners, comments:

‘The uptick in CGT liabilities on residential properties in 22/23 doubtless arose as buy-to-let investors continued to sell up as mortgage rates soared and a tightening tax and legal environment that has made it more difficult to profit from a property portfolio in the last decade. But this figure then fell in 2023/24 to £1.553billion so it looks like that process of property disposals might have run its course. That drop could also be due to sellers having rushed to get under the line ahead of April 2023 when the CGT allowance was slashed to £6,000.

‘As the new Government looks at options to fill public finance “black holes”, taxes on wealth like CGT have taken the spotlight. But CGT is also a tax on investment and it is an unpredictable revenue raiser as investors can usually decide when they want to sell an asset and will often defer or bring forward disposals to mitigate the tax burden. Moreover, while listed shares can be disposed of immediately, residential property takes somewhat longer and a business longer still.
 
‘In the case of a private business, a higher CGT rate might deter a sale altogether as the entrepreneur or family owner decides to keep hold and retain the income they are earning rather than sell up and pay a big tax bill. That goes to show the potential economic inefficiency of higher CGT rates as investors hold on to less profitable assets rather than sell up and reinvest somewhere else. After all, the rationale historically for CGT rates being kept lower than income tax rates is that investing or setting up a business requires the commitment of capital and the shouldering of risk, whereas paid work is more reliable, less risky and easier to come in and out of.
 
‘Studies have shown that a CGT rate hike might fail to bring in higher revenues in the medium term. While that might not put the Government off a CGT hike, there are other ways they could look to raise the CGT take. One would be to look at levying CGT on assets at death, where currently there’s no liability. Another would be to reduce ISA allowances or bring in some kind of ‘lifetime’ ISA limit.’

Four possible ways to mitigate CGT: 
 
1.          Married couples and civil partners 
 
Married couples and civil partners can transfer assets between themselves free of CGT, to maximise use of tax allowances. This means couples can make use of two sets of capital gains tax allowances when selling shares, two sets of ISA allowances to shelter investments from future capital gains and even where some CGT is likely, shifting investments into the name of whichever partner pays a lower tax rate can help reduce a tax bill.

2.         Maximise ISA and pension contributions

Disposals of assets in a stocks and shares ISA or a pension fund are not subject to CGT. Subject to other investment decisions, using your annual ISA and pension contribution allowances to increase the proportion of your assets held in these vehicles can be effective planning.

3.         Use (and don’t lose) your allowances

The annual exempt amount for CGT does not carry forward from year to year. Given that it is being severely reduced next year, it is worth thinking about accelerating any disposals that might take you over next year’s allowance. As general practice, reviewing your allowances well before the end of the tax year on 5 April and using them where possible can be very effective tax planning.

4.         Consider tax-efficient investments

Some investments can qualify for special reliefs. One of the most important, business asset disposal relief, is for those with a significant stake in a business, but investors can also access CGT relief when buying shares in smaller companies. Options include the enterprise and seed enterprise investment schemes and venture capital trusts. These can be higher risk investments, and the relief is limited.

ENDS

Disclaimer  
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.  
Issued by the Evelyn Partners group of companies (the 'Group') which comprises Evelyn Partners Group Limited and any subsidiary of Evelyn Partners Group Limited from time to time.   
© Evelyn Partners Group Limited 2024   
   
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We are a wealth management and professional services group, created following the merger of Tilney and Smith & Williamson in 2020. With £61.8 billion of assets under management (as at 31 March 2024) we are one the largest UK wealth managers and are also the seventh largest UK accountancy firm ranked by fee income (source: Accountancy Age 50+50 rankings, 2023). Evelyn Partners was named Accountancy Firm of the Year in the 2023 City AM Business Awards.   
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