Tax by tax, spend by spend

Capital gains tax

This Forecast in-depth page has been updated with information available at the time of the March 2024 Economic and fiscal outlook. We are aware of a technical issue with our tableau charts across the site. Access the data from our March 2024 forecast supporting spreadsheets directly.

Capital gains tax (CGT) is levied on profits made from the sale of assets. CGT is paid by individuals and trusts. Gains made by companies are subject to corporation tax. In 2024-25 we estimate that CGT will raise £15.2 billion. This represents 1.3 per cent of all receipts and was equivalent to £530 per household and 0.5 per cent of national income.

The rate of CGT paid depends on the income of an individual and the type of asset being sold:

  • Basic rate income taxpayers are typically subject to lower CGT rates: 10 per cent on gains from most assets and 18 per cent on residential property and ‘carried interest’ (performance-based rewards for investment managers). Primary residences (i.e. one’s main home) are exempt from CGT.
  • For trusts, and for individuals whose combined income and gains are above the higher rate income tax threshold, higher rates of CGT apply (20 per cent for most assets, 24 per cent (from 6 April 2024) on residential property and 28 per cent on carried interest).
  • Sole traders and partners selling their business may qualify for the lower Business Asset Disposal Relief rate of 10 per cent, up to a lifetime limit of £1 million.
  • Tax is only paid on gains above a threshold (the Annual Exempt Amount), which is £6,000 for individuals and £3,000 for trusts in 2023-24 and is set to fall to £3,000 and £1,500 for individuals and trusts respectively from 2024-25 onwards.

  Forecast methodology

Forecast process

The OBR commissions forecasts of CGT receipts from HM Revenue and Customs  for each fiscal event. We provide HMRC with economic forecasts that are used to generate the tax forecasts. These are scrutinised in a challenge process that typically involves two rounds of meetings where HMRC analysts present forecasts to the Budget Responsibility Committee and OBR staff. This process allows the BRC to refine the assumptions and judgements that underpin the forecasts before they are published in our Economic and fiscal outlooks (EFOs).

Forecasting models

The CGT forecast is based on historical patterns in CGT accruals relating to financial and non-financial asset disposals. The forecast can be split into two parts: a base year estimate for the latest year where sufficient self-assessment data are available, and the medium-term forecast projecting the base year into the future using relevant economic determinants. Financial assets are projected forward using our equity price forecast, while residential assets are projected using our house price and property transactions forecasts.

Main forecast determinants

The main determinants of our CGT forecast are those related to the tax base, i.e. the financial and non-financial assets on which capital gains are realised:

Main forecast judgements

The main forecast judgements include:

    • The relationship between equity markets and disposals of listed shares – our model uses an econometric relationship to relate equity prices to the value of CGT liabilities, but this relationship is historically volatile and therefore highly uncertain. We also look at the drivers of equity market performance to help understand whether listed share prices are likely to be a good predictor of future receipts.
    • The performance of unlisted shares – there is very limited data available on the value and disposals of unlisted shares. We use the performance of listed shares to proxy the value and volume of disposals in this sector, but may use judgement to move away from that simple relationship in cases where we do not consider that the evolution of listed equity markets provides a good indicator.

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  Previous forecasts

CGT is strongly geared to changes in asset prices, and the number and timing of asset disposals, which have in the past been influenced by policy changes as well as market sentiment. CGT is also mostly paid in the financial year following an asset disposal, so there is no timely information on receipts. These factors mean that CGT receipts are particularly difficult to forecast. In line with this, our errors for CGT receipts have been relatively large, but in both directions.

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  Policy measures

Since our first forecast in June 2010, governments have announced a number of policy measures affecting our forecast for CGT. The original costings for these measures are contained in our policy measures database and were described briefly in the Treasury’s relevant Policy costings document. For measures announced since December 2014, the uncertainty ranking that we assigned to each is set out in a separate database. For those deemed ‘high’ or ‘very high’ uncertainty, the rationale for that ranking was set out in Chapter 3 of the relevant Economic and fiscal outlook (Annex A prior to the March 2023 EFO).

These CGT policy changes include:

  • An increase in the tax rate for high earners from 18 to 28 per cent was announced at the June 2010 Budget.
  • Changes in the tax treatment of carried interest targeted at the preferential treatment of private equity and hedge fund managers were announced at the July 2015 Budget. The tax treatment of carried interest was modified again in the 2017 Autumn Budget.
  • Changes to the payment window for disposals of residential property (from up to 22 months to 30 days) from 2019 onwards were announced at Autumn Statement 2015. This measure was delayed by a year in the 2017 Autumn Budget. It came into effect from April 2020. This payment window was expanded to 60 days in Autumn Budget 2021.
  • Reductions in the rates for assets other than residential property and carried interest were announced at Budget 2016.
  • Restrictions to two ancillary reliefs within private residence relief (final period exemption and lettings relief) were announced at Budget 2018.
  • March 2020 Budget announced a reduction in the lifetime limit of Entrepreneurs’ Relief – from £10 million to £1 million, with effect from March 2020, and the renaming of Entrepreneurs’ Relief to “Business Asset Disposal Relief”.
  • Autumn Statement 2022 announced a reduction in the Annual Exempt Amount (AEA) to £6,000 for individuals and £3,000 for trusts in 2023-24, and £3,000 for individuals and £1,500 for trusts from 2024-25 onwards.
  • March 2024 Budget announced a reduction to the higher rate paid on residential properties from 28 per cent to 24 per cent. CGT is also affected by the announced reforms to the ‘non-domicile’ regime from April 2025. For eligible UK residents, gains can be brought to the UK for four years without incurring tax. For UK residents who are ineligible, there is a two-year window from 2025-26 to 2026-27 to bring onshore previously realised foreign gains at a discounted rate of 12 per cent, with only the gains since 2019 incurring tax.

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  Ready reckoners

‘Ready reckoners’ show how our fiscal forecasts could be affected by changes in selected economic determinants. They are stylised quantifications that reflect the typical impact of changes in economic variables on receipts and spending. These estimates are specific to our March 2023 forecast and we would expect them to become outdated over time, as the economy and public finances, and the policy setting, continue to evolve. They are subject to uncertainty because they are based on models that draw on historical relationships or simulations of policy settings. More information can be found in the ‘ready reckoners’ spreadsheet available on our Data page.

The table below shows that:

  • CGT is very sensitive to changes in equity prices, as the tax is only due on the profit on sale of the asset, and not its overall value. So changes in equity prices influence both the value and likelihood of asset disposals; and
  • The value of and turnover in the housing stock affects the value of assets subject to capital gains tax, but this has a much smaller effect.
WordPress Data Table

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Other taxes

Boxes

Within each of our key publications we include topical ‘boxes’. These self-contained analyses are unique to this publication and tend to cover recent developments in the economy or public finances that complement the main discussion of our analyses.

Behavioural responses to capital tax measures

Chart 3A: Highest marginal capital gains tax rates on shares by country
The capital tax measures announced in the October 2024 Budget affected an overlapping set of taxpayers and tax bases, mainly across capital gains tax, inheritance tax and income tax. In this box, we considered how individuals can respond to an increase in a capital tax liability, and what we assumed about these behaviours in our costings for capital tax measures.

Receipts from capital taxes

Receipts from capital taxes
Receipts from capital gains tax (CGT), inheritance tax (IHT) and stamp duty land tax (SDLT) were expected to rise sharply over our March 2014 forecast. This box set out the drivers behind that rise, in particular the impact of rising effective tax rates.