Capital gains tax explained: ‘Simple steps’ to reducing your HMRC bill

The Office for National Statistics (ONS) has released new data which shows the amount taken in capital gains tax has risen by 42 percent to £14.1billion for the 2020-21 tax year. This is a sharp rise from the £10.1billion in CGT receipts which was raked in for the 2019-20 tax year. Overall, around 323,000 taxpayers paid money towards capital gains tax in 2020-21, an increase of 53,000 from the last tax year.

With CGT receipts reaching this record level, taxpayers will be looking to reduce their liability for the levy and save money on their bill.

Capital gains tax is a levy on the profit someone makes when they dispose of an asset they own which has increased in value.

The gain someone makes from this hiked value is taxed, not the amount of money they make from disposing of it.

Examples of disposing of an asset include selling it, swapping it for something else or giving it away as a gift to someone.

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According to ONS data, capital gains tax on residential property disposals made up £1.7billon of the receipts in 2021-22.

This CHT bill was paid by around 129,000 taxpayers and was an increase to the £1.1billion taken in from the 2020-21 tax year.

Experts are warning that this rise is likely due to changes in Business Asset Disposal Relief and concerns about CGT rises towards the end of the tax year.

The average bill for the 2021-20 tax year was £44,316 per every capital gains taxpayer, a rise from £37,289 the year before.

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Alex Davies, the chief executive of Wealth Club, shared his thought’s on HMRC’s capital gains tax figures.

Mr Davies said: “Capital gains tax is charged on the profit from the sale of a business, shares and investments, second properties and family heirlooms.

“It’s a great cash cow for HMRC who raked in over £14billion from the tax in 2020-21, that’s 42 percent more than in the previous year.

“This is a steep increase on the amount received in the previous year, which is put down to media speculation about changes to CGT rules, policy changes affecting eligibility for certain reliefs, and also to a lesser extent, an increase in the number of buy-to-let disposals as a result of the change in tax rules.”

The financial expert outlined how the CGT works and the way in which people can reduce their eventual bill.

He added: “Each year there is a capital gains annual allowance of £12,300 per person and everyone gets a new CGT allowance each new tax year.

“After that, capital gains tax is due. If you don’t use your allowance it cannot be carried over to the following year.

“The good news is there are still a number of steps individuals can take to ensure they keep CGT bills to a minimum.”

Savers looking to avoid capital gains tax can invest up to £20,000 in an ISA every year, and up to £40,000 for your pension depending on their individual circumstances which means they can avoid paying the CGT bill.

Those who are married have the option to transfer their assets into their partner’s name, or split it with them.

This means that when an asset is sold they can both use their annual allowance of £12,300, which reduces the amount of CGT they are liable for.

On top of this, savers can split the sale of assets, including shares in a portfolio, over several years so they avoid going over their annual allowance.

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