Baroness Penn, Treasury, has provided the following answer to the written parliamentary question (HL3755) from Lord Lee, Patron of ShareSoc:
To ask His Majesty’s Government what estimate they have made of (1) the number of additional taxpayers who will have to complete Capital Gains tax returns as a result of the proposed reduction in threshold, (2) the amount of additional tax revenue that is likely to be raised, and (3) the extra cost of administration that will be required as a result of those changes. (HL3755)
Tabled on: 24 November 2022
A measure was announced at Autumn Statement 2022 to reduce the annual exempt amount (AEA) for capital gains tax (CGT) to £6,000 for tax year 2023 to 2024, with a further reduction to £3,000 for tax year 2024 to 2025 and subsequent tax years.
In 2024 to 2025, 260,000 individuals and trusts are estimated to be brought into the scope of CGT as a result of the measure.
However, some of those taxpayers brought into the scope of CGT would already have been expected to complete the capital gains tax supplementary pages within Self Assessment for the following reasons:
- To report a loss;
- To claim a relief;
- Where the total amount or value of the consideration for all ‘chargeable disposals’ of assets made by the person in the year exceeds four times the AEA before April 2023 (£50,000 from April 2023)
The amount of additional tax revenue that is expected to be raised as a result of the measure is set out in the table below:
|Tax Year||2022 to 2023||2023 to 2024||2024 to 2025||2025 to 2026||2026 to 2027||2027 to 2028|
|Exchequer impact (£million)||0||+25||+275||+425||+435||+440|
These figures are set out in table 5.1 of Autumn Statement 2022 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2022 which is available on the gov.uk website.
A cost in the region of £100,000 will be incurred in delivering the relevant IT changes to support safe implementation of this measure. HMRC also expects to receive additional contact from customers who require support as a result of this change.
Date and time of answer: 08 Dec 2022 at 17:26.
The PQ answer seems to raise even more questions than the initial PQ. The answer fails to answer the second question about the amount of tax revenue likely to be raised by the additional 260,000 taxpayers (we estimate this at £156m, but it could be less if behaviourial responses reduce the amounts raised). The answer also fails to answer the third question the extra cost of administration that will be required for the additional 260,000 taxpayers (who we estimate will be paying an average of an extra £600 per head).
PQ answer said 260,000 individuals and trusts are estimated to be brought into the scope of cgt as a result of this measure. THIS IS NEW INFORMATION.
The PQ restated the estimated additional tax revenue in 2024/25 of £425 million from reducing the threshold from £12,300 to £3,000 for 2023/24. We knew this already as it is on page 23 of this document.
The 260,000 will have gains between £3,000 and £12,300, which will be taxable. The geometric mean between £3,000 and £12,300 is roughly £6,000 and this seems a good estimate of the average capital gain of these 260,000. The average CGT per head to be paid by these 260,000 is therefore about £600. The additional CGT revenue from these 260,000 is therefore 260,000 x (£6,000 average gain – £3,000 CGT threshold) x 20% = £156 million. This is such a small sum in tax terms that it barely moves the needle.
This suggests that the additional revenue from the existing 872,000 of CGT taxpayers will grow by only £269m, i.e. by £308 per person. The source of the 872,000 is https://www.gov.uk/government/statistics/capital-gains-tax-statistics, Table 7.2: Estimated number of taxpayer disposals, disposal proceeds and gains by financial asset type. (The data is for 2019/20.)
However, if all 872,000 paid the CGT on all of their gains between the old and new threshold at 20% tax, the extra CGT tax would be 872,000 x (£12,300-3,000) x 20% = £1,622 million.
There may be an explanation for this difference of £269 million and £1,622 million. The Policy Costing assumptions note “The costing accounts for multiple behavioural responses including bringing forward disposals, reducing investments, taking earnings as income as opposed to capital gains and knock-on impacts on Stamp Duty Land Tax revenues.” Or the Treasury may have underestimated this by a factor of 5.
The figures Government have quoted are for all forms of Capital Gains, not just quoted shares. I hope that only 260,000 extra shareholders will be dragged into the CGT net by this change. However, I fear it will be many more. They are an estimated 5 million shareholders of quoted companies and funds and in 2019/20 only 498,000 people paid CGT on quoted shares (and funds of shares).
The government’s estimate of the cost of implementing this measure doesn’t seem to allow for the extra costs of handling all the queries that are bound to arise from taxpayers unused to complex CGT calculations.
This is an official ShareSoc News Item, written by ShareSoc Director Cliff Weight.