New figures from HMRC reveal the taxman collected £18.1bn in Capital Gains Tax in 2022/23, a huge £7bn more than two years previously.
It means the amount of CGT collected by the government has doubled in the past five years, and more than tripled in the past decade.
Buy-to-let landlords offloading property are behind these rocketing receipts, which are set to continue as the CGT annual tax-free exemption has been slashed from £12,300 a year to £6,000 and is set to fall to £3,000 from April next year.
Sean McCann, chartered financial planner at NFU Mutual, explained that there were several factors behind these huge increases.
“More buy-to-let landlords are offloading property because of increasing mortgage rates and are being hit based on the rise in the value of their property.
“With the value of the average UK property having increased by 70% over the last 10 years, many are facing substantial bills."
He added: “The annual exemption was slashed from £12,300 to £6,000 last month and is set to be reduced to £3,000 next April.
"This led many landlords to bring forward the sale of the property to benefit from a higher tax-free exemption.
“Volatility in the stock market with large fluctuations and higher interest rates available on cash will have encouraged some investors to sell shares, realising gains that would have been taxed."
Capital Gains Tax is paid when investors realise gains on shares or properties that aren’t their main residence.
However, many people are unaware that CGT is payable on gifts.
Mr McCann said there were a number of Capital gains tax traps that people unwittingly fell into.
"Most notably, few people realise giving away property, shares, or other investments can trigger a tax bill," he explained.
“For example, if a parent gives property or a portfolio of shares to their children, that’s deemed to be a disposal and could be liable for Capital Gains Tax.
"It’s also possible the gift could be hit with a subsequent Inheritance Tax bill if the person making the gift dies within seven years.”
How do I reduce my bill?
According to NFU Mutual, there are some simple ways to help reduce a CGT bill.
“Everyone can enjoy £6,000 of gains in the current tax year before they have to pay Capital Gains Tax," Mr McCann said.
“Simple steps such as sharing ownership of assets between spouses or civil partners before they are sold or gifted, allows you to take advantage of two tax free allowances.
"Staggering sales across two or more tax years can help reduce capital gains tax bills.
“You can protect stock market gains by investing in an ISA or Pension as any growth would be free of capital gains tax.
“Those giving away business assets or making gifts to trusts may also be able to defer capital gains tax. The key is to take advice before selling or gifting investments or other assets.”
What next for CGT?
Mr McCann said: “The Chancellor has already slashed the annual exemption, which means the tax take will continue to climb.
“Increasing the rates to align them to Income Tax has recently been mooted, but this Government is unlikely to do that before the next election.”
