One in 10 advice firms gain new clients as need for CGT support grows
Falling exemption thresholds for capital gains tax have prompted a marked increase in clients seeking professional advice, according to figures released by tax software provider Financial Software Limited.
The annual CGT-free allowance has contracted substantially over recent years, dropping to £3,000 in 2024/25 from £12,300 in 2022/23. This reduction has expanded the population of taxpayers subject to the levy by approximately 87,000 individuals.
Research undertaken by the lang cat reveals the scale of this expansion. In 2022/23, roughly 18% of adviser clients faced CGT obligations. By 2024/25, this figure had risen sharply to 37%. Additionally, around one in 10 adviser have attracted new clients specifically due to these adjustments or because clients face unexpected tax bills following the allowance reductions.
Latest figures from HM Revenue and Customs indicate that 359,000 people incurred CGT liabilities during 2023/24, a marginal increase from 355,000 the previous year. Significantly, nearly two-thirds of these individuals earned less than £49,999 annually, placing most within the basic-rate taxpayer bracket, which spans £12,571 to £50,270 in England and Wales. This distribution underscores that CGT no longer exclusively affects wealthy individuals.
“Given the number of taxpayers that have now been brought into scope for CGT, it’s no surprise that many are turning to advisers for support and expertise,” said Michael Edwards (pictured right), managing director at Financial Software Limited.
“With tax reporting becoming an increasing part of advice firms’ day-to-day work, it’s imperative that providers and platforms support their advisers with robust tools and accurate data to make light work of what can be an extremely onerous and complex task. This is also vital to ensure they’re fulfilling their obligations under Consumer Duty and supporting clients with avoiding foreseeable harm such as hefty fines from HMRC.”
The Office for Budget Responsibility projects substantial growth in CGT revenue in coming years. It expects receipts to reach £19.7 billion during 2025/26, partly driven by clients accelerating asset sales in anticipation of further tax rises announced in the 2024 Autumn Budget. The forecasting body anticipates continued expansion, with receipts climbing to £25.5 billion by 2029/30.
Speculation persists regarding potential additional reforms to CGT policy as the government addresses a substantial fiscal shortfall. Research from wealth management firm Saltus suggests that 78% of affluent families anticipate tax increases within the coming year, while nearly half expect CGT rates to be raised further following recent amendments. Presently, basic-rate taxpayers incur tax at 18% on capital gains, while higher and additional-rate taxpayers face a 24% rate. All individuals benefit from a £3,000 annual tax-free allowance.
Analysts anticipate potentially small increases in CGT rates and the abolition of business asset disposal relief (BADR). A long-standing proposal from think tanks is to align capital gains tax rates with income tax rates, which would mean investors paying significantly higher rates on profits from assets rather than the current 18% and 24% rates.
While there is no suggestion that the £3,000 annual CGT allowance will change from its current level, given the government's need to raise revenue, small rate increases are considered more likely than dramatic overhauls. For mortgage professionals, these changes would have implications for clients disposing of investment properties or second homes, as higher CGT rates would reduce the proceeds from sales.
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