UK capital gains tax receipts surge ahead of Budget

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The UK registered a 16.3 per cent increase in capital gains tax receipts in the third quarter, according to data released on Tuesday ahead of the new Labour government’s first Budget.

CGT receipts rose to £572mn between July and September, compared with £492mn in the same period in 2023, statistics from HM Revenue & Customs showed.

Monthly CGT receipts for September came in at £192mn — the highest figure recorded for the month since at least 2008.

While monthly receipts can be volatile, tax experts said the overall trend in rising receipts had been driven by cuts in the annual tax-free allowance and more investors realising their gains ahead of the Budget.

“It was predictable that individuals might seek to trigger disposals at current CGT levels in anticipation of a possible rate increase in next week’s Budget,” said Hayden Bailey, head of private client and tax at Boodle Hatfield.

Overall, gross tax and national insurance receipts rose to £406.3bn between April and September, up £11.1bn on the same period last year.

The data also showed that inheritance tax receipts in the five months to September hit £4.3bn — £400mn higher than the same period last year, representing an increase of 10 per cent.

UK chancellor Rachel Reeves is expected to target both CGT and inheritance tax, triggering a recent wave of activity from investors and entrepreneurs seeking to realise gains and pay CGT at existing rates before changes come in.

Laura Hayward, tax partner at Evelyn Partners, said the increase in CGT receipts was probably driven by falls in the annual exemption allowance and investors realising gains over the past year in anticipation of rate rises. The tax-free allowance has fallen from £12,300 in 2022-23 to £3,000 in 2024-25.

“If the chancellor announces a rate rise to come in on 6 April 2025, that will prompt thousands of investors to realise an avalanche of gains in the subsequent five months,” she said.

“This would boost tax revenues in the 2024-25 tax year but CGT takings could drop off dramatically in the following year.”

Inheritance tax receipts have been boosted by a continued freeze of the tax-free allowance since 2009 and rising property prices, which have drawn more people into paying the tax.

“Inheritance tax is an absolute cash cow for HMRC, which is why it remains in the spotlight ahead of next week’s autumn Budget,” said Nicholas Hyett of Wealth Club, an investment manager.

People familiar with the chancellor’s plans have said that Reeves is considering removing inheritance tax relief on smaller companies listed on London’s junior market.

However, investment experts have warned this could further damage the London Stock Exchange, which is already suffering from a dwindling number of listed companies. 

Hyett said reforms to IHT “could include changes to business relief, including on Aim shares, making pensions subject to inheritance tax and extending the time period needed to make gifts inheritance tax free”.

Business relief helps families pass on their businesses to younger generations and encourages investors to buy fast-growing businesses on Aim. “Removing the relief would decimate smaller, family-owned businesses, while also making backing smaller companies less attractive,” Hyett added. 

A report last week by the influential think-tank New Financial warned that the Aim market faces an “existential threat”, noting that about 600 companies with a market value of less than £1bn have delisted over the past two decades.