UK Government Faces Capital Gains Tax 'Double Whammy'

by Jason Gorringe, Tax-News.com, London

29 October 2008

While HM Treasury collected more than GBP5bn in capital gains tax revenues in 2006/07, the government is facing a steep decline in this once-dependable stream of receipts, according to the Association of Chartered Certified Accountants (ACCA).

Chas Roy-Chowdhury, ACCA head of taxation, explains that the double-hit will come from a slowdown in the rental and purchase of second properties and in securities trading. The decline in mortgage lending and the aftershocks of Bradford and Bingley’s demise as a popular mortgage lender for buy-to-lets will also have a negative affect on the amount of money heading to the government’s coffers, he said.

“Also capital gains receipts from shares will decrease because there is a fall in share prices. The market will again push down the level of capital gains tax which people pay to the taxman," noted Roy-Chowdhury.

“Overall, even if the stock market begins to rally, ACCA suspects there will be sharp declines in the amount of CGT which goes to the Exchequer over at least the next year," he added.

ACCA believes that income tax receipts in relation to these sources will also dwindle – first with the level of rental income declining, both from a general downward trend in the property lending market but also with the cost of mortgages for second properties increasing.

Secondly, there will be a decline in income tax payments as business profitability reduces and the level of dividends lessens – this means less income tax is payable.

Roy-Chowdhury concludes: “The tax rules on buy-to-let have been profitable for Government and for landlords alike, and the same can be said for the taxation of investment in shares, so long as the market was buoyant. Both have normally generated significant levels of chargeable gains for the Exchequer if a property or shares were worth more than when paid for or when they were sold. However, the first GBP9,600 of total taxable gains are tax free (tax year 2008-2009). But the tables have now turned with capital losses likely to become the norm. We now wonder how much of the GBP5 billion revenue could be lost because of current market difficulties?”

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