On 5 August 2021 the UK released the latest annual statistics for capital gains tax (CGT). The statistics are based on self-assessment tax returns that report a CGT liability.
In the 2019/20 tax year, the total UK CGT liability was GBP 9.9 billion and the tax was paid by a total of 265,000 CGT taxpayers, reporting a total of GBP 65.8 billion in capital gains. In comparison to the previous year the total CGT liability and gains increased by 3% but the number of people paying CGT decreased by 6%.
A feature of the UK CGT is that most of the tax collected is paid by a small number of taxpayers who are making the largest gains. In 2019/20 41% of the CGT collected came from taxpayers with gains of GBP 5 million or more, fewer than 1% of the total number of CGT taxpayers.
Entrepreneurs’ Relief
Entrepreneurs’ relief (ER) provides for the CGT rate to be reduced to an effective rate of 10% on qualifying disposals of business assets up to a specified lifetime limit. An eligible claimant must be an individual carrying on a business as a sole trader or partner, or a trustee disposing of assets used in a business; or the owner of at least 5% of shares in a trading company (or holding company of a trading group) of which the individual is an employee or officer. The business should be engaged in a trade, profession or vocation.
The uptake of the relief has been greater than the government envisaged when it was introduced and the relief is seen by some as regressive and ineffective in achieving its stated objectives.
In March 2020 the lifetime limit for gains qualifying for ER (now called the Business Asset Disposal Relief) was reduced from GBP 10 million to GBP 1 million, but this was too late in the 2019/20 tax year to have much effect on the statistics for the year.
More than a quarter of the CGT collected in 2019/20, amounting to 28% of the total, was from CGT disposals qualifying for ER. ER was claimed by 46,000 taxpayers on capital gains of GBP 28.9 billion in 2019/20, with a total tax charge of GBP 2.8 billion. This represented the highest total gains and tax on disposals qualifying for ER since the relief was introduced.
CGT on UK Property Service
Since April 2020 a UK resident disposing of a UK residential property must calculate, report and pay the tax within 30 days of completion. The report is made online through the UK Property Reporting Service. In 2020/21 the service was used by 75,000 taxpayers, filing a total of 80,000 returns and reporting a little over GBP 1 billion in tax liabilities accrued on residential property disposals.
