Treasury receipts plummet as a result of Reeves' capital gains tax reforms

New data indicates that the 2024 Budget's increase in capital gains tax rates isn't helping the government's finances

Would Rachel Reeves, the chancellor, be able to avoid a wealth tax?

Despite the chancellor's decision to raise the rates in last year's Autumn Budget, HMRC's most recent figures on capital gains tax revenue to the Treasury show a significant decline.

Revenues from capital gains tax (CGT) fell from almost 17 billion in 2022 - 2023 to 14.5 billion in 2023 - 2024 and now to 13.1 billion in 2024 - 2025.

Significantly for chancellor Rachel Reeves, CGT only brought in 11.8 billion in the first half of this year, compared to 13.5 billion in the same period last year, following her Autumn Budget changes.

The government's decision to increase rates and reduce capital gains tax allowances has backfired, according to Shaun Moore, a tax and financial planning specialist at Quilter.

Despite the policy's intended revenue-raising goal, it has caused behavioral changes that have reduced tax revenue.

We examine strategies for reducing your capital gains tax in a different article.

Who is responsible for paying capital gains tax?

The profit someone makes when they sell an asset that has appreciated in value, for instance, is subject to capital gains tax.

Rather than the amount of money received, the tax is imposed on the gain realized from the disposal.

For instance, a person who buys a painting for £5,000 and then sells it for £25,000 must pay taxes on the £20,000 profit.

Everybody has an annual CGT allowance; gains over this amount are subject to the tax. Under the previous administration, this threshold was drastically lowered in recent years, and it is currently only 3,000.

What was altered by the Budget's CGT?

Reeves declared increases in the lower rate of CGT paid by basic rate taxpayers (from 10 percent to 18 percent) and the higher rate of CGT paid by higher rate taxpayers (from 20 percent to 24 percent) in her Budget statement on October 30, 2024. These rate hikes became effective right away.

For residential property, the CGT rates stayed the same. Starting on April 6, 2025, a single 32 percent rate of CGT on carried interest took the place of the two rates.

Additionally, the chancellor announced a two-phase rate increase for Investors Relief and Business Asset Disposal Relief, which will increase from 10 percent to 14 percent starting on April 6, 2025, and from 14 percent to 18 percent starting on April 6, 2026.

Lastly, for all qualifying disposals made on or after October 30, 2024, the Investors Relief lifetime limit would be lowered to £1 million, matching the Business Asset Disposal Relief lifetime limit.

In the Autumn Budget of 2025, will Reeves announce a wealth tax?

It was estimated that the two-stage increases in the rates for Investors Relief and Business Asset Disposal Relief, as well as the main capital gains tax rates, would raise 90 million in 2024 - 2025 and 1 point 44 billion in 2025 - 2026.

However, current data indicates that these projections might be off.

Concerning possible tax increases in the Autumn Budget of 2025, Moore stated, "This is particularly relevant amid renewed speculation about a wealth tax."

At Prime Minister's Questions on July 9, opposition leader Kemi Badenoch questioned Keir Starmer, who refused to rule out a wealth tax. In essence, a wealth tax is a levy on a person's entire wealth as opposed to just their income. It could be used as a percentage that people with assets over a specific threshold must pay.

Previously, campaigners proposed a 2 percent wealth tax that would be paid by those who earn more than £10 million.

Moore, however, stated: "The CGT experience demonstrates that people will alter their financial plans or change their behavior to reduce the tax bills, even though taxing the wealthiest may sound politically appealing.

"A wealth tax could undermine the very money it seeks to raise by hastening the exodus brought on by the removal of non-dom status.