Autumn Statement: Tax changes will increase burden on taxpayers and HMRC

The Chancellor announced today that the CGT annual exemption, currently at £12,300, will be reduced to £6,000 from April 2023 and to £3,000 from April 2024. The annual exemption was last at £6,000 in 1995-96. According to the Government’s own figures, this change will yield an additional £440 million by 2027-28. The dividend allowance, first introduced in 2016 providing a 0% rate on the first £5,000 of dividends, was reduced to £2,000 in 2018 – from April 2023 it will go down to £1,000 and then to £500 in 2024, raising a further £940 million by 2027-28.

Danny Clifford, Chair of the Chartered Institute of Taxation’s Private Client (UK) Committee, commented:

“The attraction of bringing more people into paying tax on dividends and capital gains is obvious from a revenue-raising perspective, and can be seen as fairer to taxpayers who earn income in other ways, but it will also increase the administrative burden on taxpayers and HMRC alike.

“For CGT, only those whose chargeable gains are above the annual exemption are required to complete a tax return; likewise, those with dividend income are required to do so when the amount of that income goes above the allowance.

“In November 2020, the Office of Tax Simplification¹ recommended that the government consider lowering the CGT annual exemption and looked into the likely implications of such a change. At the time, they predicted that a reduction to £6,000 would require an additional 235,000 individuals to report a capital gain, with only 96,000 already completing a tax return each year – the rest now having to do so because of that change. A reduction to £2,500 (so slightly below the new 2024 level), would require a further 360,000 (on existing levels) to report a gain with only 120,000 of those already completing tax returns.

“Whilst these figures are two years old, they are still likely to be a fair representation of the number of people who will be brought into the self-assessment system due to the CGT annual exemption change announced today: that is, more than 200,000 people a year.

“In its report the OTS said that if the Government were to reduce the CGT Annual Exempt Amount it should do so in conjunction with a series of accompanying measures, including linking the real time capital gains service to the Personal Tax Account. We hope the Government will give these serious consideration and will be prepared to make the investment required to achieve it.

“The dividend allowance changes affect (at least) two populations. The first are owner managed businesses (including personal services companies) who either operate through a company or are thinking about doing so. For them the changes reduce the tax benefits of incorporation, and this might be seen as leading to a more level playing field. The second population include many employed people and pensioners who receive small amounts of dividends through investments. The dividend allowance was intended primarily for this latter group back in 2016, to avoid their having to complete a tax return purely on account of a relatively small shareholding. More will have to do so after 2023 and 2024 and the CIOT is concerned whether they, as well as those with chargeable capital gains, will be aware of their compliance obligations.”

Another 0% band affected by today’s announcement was that for inheritance tax. The ‘nil-rate band’ has been at £325,000 since 2009 and was due to increase in 2026. However, there will no increase until April 2028, likely bringing more estates into the 40% charge.

The CIOT is concerned that bringing more people into the scope of tax across a range of different taxes will put further pressure on HMRC’s limited resources. We have pressed for resources for the government’s revenue-raising department to keep pace with the needs created by changing legislation.²

John Cullinane, CIOT Director of Public Policy, commented:

“As well as being an additional burden on taxpayers, these changes mean HMRC will have many more tax returns to process and will increase their administrative burden significantly at a time when they are already struggling with demands on them.

“We are already deeply concerned about the difficulties both advisers and taxpayers face getting timely responses and action from HMRC. We have written to ministers raising this. HMRC’s performance standards need to be improved if the tax authority is to play its essential role in supporting taxpayers and businesses.

“If the Chancellor is going to ask them to do more he needs to resource them adequately for this, or we fear service levels will fall further.”

Notes for editors

1. OTS report: Capital Gains Tax Review – First Report: Simplifying by Design.

The report included these recommendations:

Recommendation 5: If the government’s policy is that the Annual Exempt Amount is intended mainly to operate as an administrative de minimis, it should consider reducing its level.

Recommendation 6: If the government does reduce the Annual Exempt Amount, it should do so in conjunction with:

• considering reforming the current chattels exemption by introducing a broader exemption for personal effects, with only specific categories of assets being taxable,
• formalising the administrative arrangements for the real time capital gains service, and linking up these returns to the Personal Tax Account, and
• exploring requiring investment managers and others to report Capital Gains Tax information to taxpayers and HMRC, to make tax compliance easier for individuals.

2. The CIOT set out its concerns most recently in a letter to the new Financial Secretary to the Treasury