Did you know the rules around Capital Gains Tax are changing?
- AuthorSophie Barnes
In simple terms, Capital Gains Tax (CGT) is a tax charge applicable to the gain/profit on the sale of an asset, caused by an increased value in comparison to the purchase price. Most commonly this applies to second properties, shares, investments, the sale of a business and valuables such as antiques, art or jewellery.
At present, an individual can make gains of up to £12,300 per tax year before Capital Gains Tax is applied. However the government have announced that this annual exemption will be cut to £6,000 for the 2023/24 tax year and to £3,000 for the 2024/25 tax year.
On any gains or profits made over that exemption, basic rate tax payers are liable to a tax charge of 10%, or 18% for residential property. Higher and additional rate tax payers are liable to a tax charge of 20% or 28% for residential property on gains or profits over the exemption.
There are many ways to potentially reduce your Capital Gains Tax, although this is a complex area and without professional advice there is a risk you could pay it unnecessarily. Some possible ways to reduce your CGT are as follows:
- Utilise your annual ISA allowance – ISAs are exempt from CGT. In the 2022/23 tax year, each individual can contribute up to £20,000 into an ISA.
- Contribute into a pension – Pensions are also exempt from CGT. Spreading your wealth between a range of tax wrappers is sensible as many are subject to different taxation rules. Investment bonds are also free of CGT.
- Transfer assets to a spouse or civil partner – Transfers between spouses and civil partners do not trigger CGT and are exempt, effectively doubling the CGT exemption.
- Utilise any losses made – Gains and losses which are made in the same tax year can be offset against each other to reduce the overall gain liable to Capital Gains Tax. In addition to this, 'unused' losses from previous tax years i.e. losses which have not already been used to offset a gain, can be brought forward to the current tax year providing they are reported to HMRC within 4 years of the year they were made.
- Seek professional expert advice – Capital Gains Tax is a complex area. A financial adviser will be able to ensure you are maximising your exemptions and reliefs and explain your options for your personal circumstances.
Please note that the tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
Please also note that the Financial Conduct Authority does not regulate taxation advice.
If you want to find out more, please do not hesitate to get in touch with our team for expert, personalised advice on this area.