On 5 August 2021 the UK released the latest annual statistics for capital gains tax (CGT) collections. The statistics are based on self-assessment tax returns that report a CGT liability.
Record amounts of capital gains were reported in 2020/21 and record amounts of CGT were collected. The total CGT liability for the year was GBP 14.3 billion, an increase of 42% on the previous year, and this was paid by 323,000 taxpayers. The total capital gains on which CGT was charged amounted to GBP 80 billion of gains.
The report notes that most CGT was paid by a small number of taxpayers, representing only 1% of CGT taxpayers in the year. In 2020/21, 45% of the CGT collected was paid by taxpayers with gains of GBP 5 million or more.
The statistics for 2020/21 show that around 40% of CGT taxpayers were from London and the Southeast of England, and those taxpayers accounted for around half the total gains and tax liabilities for the 2020/2021 tax year.
Business Asset Disposal Relief
Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ Relief, 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.
BADR was claimed by 47,000 taxpayers in 2020/21 on GBP 11.9 billion of gains, with a total tax charge of GBP 1.1 billion.
With effect from 11 March 2020, the lifetime limit for BADR was reduced from GBP 10 million to GBP 1 million. This meant that where a taxpayer had made disposals which met the qualifying conditions for the relief, but the resulting gains fell above the GBP 1 million lifetime limit, the excess gains were charged at the main CGT rates. As a result, fewer gains were eligible for the relief in 2020/21 and fewer claims were made for the relief. The amount of tax charged at the lower 10% BADR rate therefore decreased by 60% compared to 2019/20.
UK property reporting service
Since April 2020 a UK resident disposing of a UK residential property should calculate, report and pay the tax within 30 days of completion. The report is made online through the UK property reporting service.
In 2021/22 (the year to 5 April 2022) the UK property reporting service was used by 129,000 taxpayers. They filed 137,000 returns reporting tax liabilities of more than GBP 1.7 billion accrued on residential property disposals. This was an increase of nearly 50% compared to the tax liabilities reported in the previous tax year.
The increase was mainly due to increases in the number of taxpayers using the service and in the number of property disposals reported. This resulted from the general trend in the UK residential property market, where the number of transactions increased between 2020/2021 and 2021/22 owing to a loosening of some of the restrictions introduced during the pandemic. The increase may also reflect the fact that fewer taxpayers reported residential property disposals exclusively via self-assessment in 2021/2022 compared to the previous year.