The government reduced the capital gains tax (CGT) annual exempt amount significantly, cutting it from £12,300 in 2022/23 to £3,000 from 2024/25 onwards. On the face of it, such a sharp reduction might have been expected to increase tax revenues. In practice, the opposite has happened.
A fall in receipts
Alongside the reduction in the exemption, CGT rates on shares, securities and other non-residential assets were increased during 2024/25. The lower and higher rates rose from 10% and 20% to 18% and 24%.
Despite these measures, CGT receipts have declined. Revenue stood at £16.9 billion in 2022/23, dropped to £14.5 billion in 2023/24, and fell again to £13.5 billion in 2024/25.
These figures highlight how responsive the capital gains tax is to behaviour. Faced with higher rates and lower allowances, many investors appear to be holding on to assets and postponing disposals rather than crystallising gains.
The latest CGT receipts show how increasing tax rates and reducing exemptions don’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 trap by reducing the hours they work, declining a promotion or negotiating a pay cut in return for additional holiday.
HMRC’s latest bulletin detailing tax receipts and NICs can be found here.
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