The government cut the capital gains tax (CGT) annual exemption from £12,300 in 2022/23 to just £3,000 from 2024/25 onwards. You might expect this to lead to a higher tax take, but the results so far have been quite the opposite.
Downward trend
In addition to the annual exempt amount reduction, the rates of CGT on gains from shares and securities (plus other non-residential property) were increased partway through 2024/25 from 10% and 20%, to 18% and 24%:
However, CGT receipts were £16.9 billion in 2022/23, falling to £14.5 billion for 2023/24, and to just £13.5 billion for 2024/25.
This indicates how sensitive CGT is to taxpayers’ behaviour, with many investors simply sitting on their gains and deferring disposals.
The latest CGT receipts show how increasing tax rates and reducing exemptions doesn’t necessarily mean a straight line to more revenue – a good example of the Laffer Curve in action.
The Laffer Curve
The Laffer Curve represents the theoretical relationship between tax rates and the resulting tax take. If tax rates are set too high, the tax take will start to reduce.
In some cases, it is difficult for taxpayers to do much to mitigate the impact of tax increases. The take from employer national insurance contributions (NICs), for example, has increased dramatically since the starting threshold was reduced and the rate increased. The latest figures for December 2025 show the tax take has increased by 25% compared to the previous December.
In contrast, many taxpayers whose income has reached £100,000 have decided that doing an extra £1,000 worth of work is not worthwhile if the resulting take-home pay is just £380.
With tax thresholds frozen since 2021/22, an estimated 1.8 million taxpayers now earn more than £100,000, with another 490,000 likely to be caught over the next four years.
Many are avoiding the 62% tax & NI trap by reducing the hours they work, declining a promotion or negotiating a pay cut in return for additional holiday.
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Please contact us to find out how the above applies in your circumstances and how we can help you.
Please note that the above is for general information only and does not constitute financial or tax advice. You should not rely on this information to make or refrain from making any decisions. You should always obtain independent professional advice in respect of your own situation.
