London taxpayers pay nearly 30 per cent of the UK’s capital gains tax
Taxpayers in London pay 29 per cent of all the UK’s Capital Gains Tax despite having just 13 per cent of the UK’s population, according to a new study by Growthdeck, the private equity investment firm.
Growthdeck says that people in London paid GBP2.5 billion in CGT last year*, up 24 per cent from GBP2.1 billion the year before. The total CGT paid in the UK last year was GBP8.8 billion.
The firm says that the wealthy London borough of Kensington & Chelsea is the UK’s CGT hotspot, ranking first out of 374 areas of the UK for capital gains tax. The borough’s taxpayers paid GBP516 million in CGT last year – 6 per cent of the entire country’s CGT bill, despite having only 0.2 per cent of its population.
Kensington and Chelsea is followed in the CGT league table by another well-heeled London area, Westminster/Mayfair (second of 374 areas of the UK where capital gains tax was paid last year) with taxpayers there paying GBP348m in CGT in 2018/10.
Growthdeck says that taxpayers in these two boroughs – home to affluent neighbourhoods like Mayfair, Knightsbridge, Holland Park and Belgravia – are much more likely to have made large capital gains by selling high-value assets like second homes and shares.
Outside of London and the South East, the UK’s highest CGT bills can be found in East Cheshire, home to many Premier League footballers in the so-called ‘Golden Triangle’ of Alderley Edge, Wilmslow and Prestbury. Taxpayers in the area paid GBP133 million in capital gains tax last year, ranking it 10th of 374 areas of the UK for CGT.
Growthdeck says that many taxpayers with huge capital gains tax bills can defer paying a CGT bill by re-investing the capital gain in business which qualifies for tax reliefs available under the Government’s flagship Enterprise Investment Scheme. By making this investment, the CGT liability only becomes payable when the EIS shares are sold. HMRC effectively gives investors an interest-free loan on their CGT tax bill. On top of this, 30 per cent of the re-invested gain can be claimed as income tax relief.
EIS is an investment scheme which allows private investors to make tax savings by investing in growth businesses. EIS allows investors to:
• Invest up to GBP1 million per annum
• Reclaim 30 per cent of the cost of investment against their income tax bill
• To not pay Capital Gains Tax (CGT) on any gains realised after three years
• Claim further income tax relief should an investment result in any form of loss
• Save inheritance tax on any EIS-qualifying shares held for over two years
Gary Robins, Head of Business Development at Growthdeck, says: “For over GBP500 million of CGT to be paid a year in Kensington & Chelsea is astonishing. That’s less than five square miles of central London.”
“The Government’s take from CGT rises virtually every year, and it’s taxpayers in London that are carrying a huge amount of that burden.”
“More taxpayers should look into whether EIS investment might be a sensible way for them to defer enormous capital gains tax bills, as well as saving on income tax and inheritance tax.”
“If, as rumoured, the CGT rate is further increased, the use of EIS investments to reduce CGT bills will become even more important.”