New CGT Allowance Set to Cause Increase of £12 Billion in Tax Revenue

Changes Announced by OTS

The Office of Tax Simplification (OTS) has announced significant changes to the Capital Gains Tax (CGT) allowance, which is set to decrease to £3,000 in the 2024-25 tax year, a reduction of £2,000 compared to the current allowance of £6,000 for the 2023-24 tax year.

Reasons for Reduction

The decision to reduce the CGT allowance has been made to align the CGT annual exempt amount (AEA) with the income tax personal allowance, which is also set to be reduced in the 2024-25 tax year. This move is expected to raise over £12 billion in additional tax revenue annually.

Impact on Taxpayers

The reduction in the CGT allowance will mean that individuals will be subject to CGT on a greater proportion of their capital gains. For example, if an individual sells an asset for £15,000 and makes a profit of £9,000, they will be charged CGT on the remaining £6,000, as the CGT allowance will be subtracted from the gain.

Call for Further Simplification

The OTS report also recognized the complexity of the UK tax system and called for further simplification. The report recommended a number of measures to reduce the burden on taxpayers, including the introduction of a single tax rate for income tax and CGT.