Total capital gains have almost tripled over the last decade, to £65bn by 2019/20. Despite this, most people never receive any capital gains, with less than 3% of adults paying capital gains tax over a ten-year period. In any given year just 0.5% of adults receive any gains, less than the number of additional rate (“45p”) income tax payers.

Instead, capital gains are incredibly concentrated:

Three in every seven pounds of gains in the UK go to people earning more than £150k. By contrast the same group receives one in every seven pounds in income.

More than half (52.2%) of all taxable gains in 2020 went to just 5,000 people, who received an average of over £6.8m per person in gains.

Gains are strongly concentrated in southern England, with more gains in the parliamentary constituency of Kensington than in all of Wales. One neighbourhood of Kensington, comprising just 6400 people, had more gains than three major cities combined: Liverpool, Manchester and Newcastle.

Even within London there are large disparities: someone living in Kensington is more than 50 times as likely to receive gains as someone in Barking.

These findings come from new research which gained unprecedented access to the anonymised tax records of capital gains tax payers. The study, by researchers from the University of Warwick and The London School of Economics and Political Science (LSE), analysed the anonymised personal tax returns of everyone who received taxable capital gains between 1997 and 2020.

A capital gain is the money received from selling an investment for more than the purchase price. Capital gains face a separate tax regime to income, with rates varying between 10 and 28% depending on the taxpayer’s income level and the type of asset sold. Capital gains tax rates are always lower than income tax rates for the same person, with reliefs in place that allow up to £10million to be received at a 10% tax rate even for the highest rate taxpayers.

These preferential rates benefit few people, who are largely well-off. Just 0.3% of people with income under £50,000 had taxable gains in an average year, but this rises to almost 40% of taxpayers with incomes over £5m receiving some gains. The median gainer in the latter group received £372,000 in gains in an average year, benefiting substantially from the gap between capital gains tax and income tax rates.

Ranking people by gains received, the top 50,000 gainers – who make up about 0.1% of UK adults – received 86.4% of gains, worth £56 billion in total, with each person receiving at least £143,000.

Before reforms in 1998, capital gains tax was progressive: those with the highest gains paid a higher share in capital gains tax. Since the early 2000s, by when the 1998 reforms had fully taken effect, capital gains tax has largely been neutral among top gainers. Under the ‘taper relief’ regime in the 2000s it was in some years regressive.

Arun Advani, Associate Professor at the University of Warwick’s Economics Department and CAGE Research Centre, said: “Capital gains are absurdly concentrated, with half the gains in the entire country going to as many people as could fit in the Albert Hall. Less than one in thirty people have any gains at all over the course of a decade.”

Andrew Lonsdale, Research Officer at LSE’s International Inequalities Institute (III), said: “There are more capital gains in Kensington than the whole of Wales, and more in Hampstead and Kilburn than the North East of England. Continuing to tax these gains at a lower rate than earnings from work is the complete opposite of ‘levelling up’.”

Andy Summers, Associate Professor at LSE Law School and III, said: “Although not common in the wider population, capital gains are a standard way to receive remuneration for the super-rich. This makes the tax break for capital gains particularly regressive.”

ENDS
Notes to editors
CAGE Policy Brief Who would be affected by Capital Gains Tax reform by Arun Advani, Andrew Lonsdale, and Andy Summers will be published at 0.01 on Tuesday 20 Feb 2024 on the following link: https://warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/bn40.2024.pdf

Sheila Kiggins, Communications Officer, CAGE Research Centre, University of Warwick: s.kiggins@warwick.ac.uk or 024 76 150204.

Jo Bale, LSE Senior Media Relations Manager: j.m.bale@lse.ac.uk or 07884 736 941.
A taxpayer realises a capital gain when they sell (or otherwise dispose of) an asset that has increased in value from the price at which they acquired it. Capital Gains Tax typically applies if the assets sold were held for investment.
The report used access to anonymised confidential data from the tax records of everyone who received taxable capital gains at any point over the period 1997­–2020, accessed via the HMRC Datalab.
Mandatory disclaimer: This work contains statistical data from HM Revenue and Customs (HMRC) which are Crown Copyright. The research data sets used may not exactly reproduce HMRC aggregates. The use of HMRC statistical data in this work does not imply the endorsement of HMRC in relation to the interpretation or analysis of the information.
This research was funded by the Nuffield Foundation 'Reforming Capital Gains Tax' grant (GE/FR-000024377) grant, the Economic and Social Research Council (ESRC) through the ‘Taxing the Super Rich’ grant (ES/W001683/1) and CAGE Research Centre at Warwick (ES/L011719/1), and by LSE International Inequalities Institute, LSE Law, and Warwick Economics.