When raising taxes backfires. What do the 2025 Capital Gains Tax figures really tell us?

 

What do you get when you raise Capital Gains Tax and see revenue fall? No, it’s not a riddle, it’s the latest twist in the UK tax landscape.

 

HMRC recently published tax receipt figures showing that Capital Gains Tax (CGT) receipts in 2025 fell by 8.4%, dropping from about £14.9 billion in 2024 to roughly £13.6 billion in 2025. That’s a surprising outcome given that CGT rates were increased in late 2024.

The Government went into 2025 expecting higher CGT yields thanks to steeper rates and lower exemptions, but instead saw receipts shrink. The headline number alone turns the usual “higher rate = higher take” assumption on its head.

 

What’s behind the fall?

 

Experts suggest a familiar theme many will have heard of, behavioural responses matter. When investors and business owners see tax on gains rise, many choose not to sell or at least not yet.

Instead of locking in gains and paying higher tax, people are delaying disposals, holding assets longer and re-evaluating financial plans.

In effect, as the tax environment gets tougher, the timing of sales changes, often to periods when higher taxes don’t impact as hard. That shift can shrink the tax base and leave Treasury receipts lighter than predicted.

This effect isn’t new to economists. It’s often illustrated by the Laffer Curve, the idea that there’s an optimal tax rate where revenue is maximised, and beyond that, higher rates can decrease revenue because they discourage the activity being taxed. In simple terms: if you make it too expensive to sell, people don’t sell.

The 2025 data suggest something very similar might be happening with CGT.

 

What Changed in 2024/25?

 

Several policy moves influenced the landscape:

• CGT rates were increased in October 2024 with higher rates for most gains.
• The annual tax-free allowance has been gradually reduced over recent years.
• Some targeted reliefs (like certain business disposal reliefs) were tightened.

The combination of higher rates and lower allowances makes realising a gain a more complex and potentially costly decision.

However, one reason the full picture isn’t clear yet is the timing of reporting. Many CGT liabilities are declared through self-assessment returns, which are only due in January the year after the gain occurs. That means the effects of late-2024 rate changes could spill further into 2026 data.

Still, early signals suggest that the intended revenue boost hasn’t materialised, at least not yet.

 

What This Means for Investors & Advisers

 

For advisers, financial planners and investors, the 2025 CGT numbers are a valuable reminder that tax planning is strategic, behavioural responses can outweigh headline policy changes, and forecasts aren’t always guaranteed. Timing matters.

So next time you see a tax increase, think beyond the rate itself. When tax rules change, it is rarely just the rate that matters. How and when you respond can be just as important.

 

How can we help?

 

With CGT rules evolving and future changes always on the horizon, proactive planning has never been more important.

Whether you are considering selling a business, disposing of an investment property, restructuring a portfolio or planning for the future, expert advice can make a significant difference to your tax outcome.

If you would like to discuss how the current CGT landscape affects you or your business, please get in touch.