Are you aware of the recent changes to Capital Gains Tax (CGT) reliefs? From April 2023, the annual exempt amount for CGT will be reduced from £12,300 to £6,000. This will further reduce to £3,000 from April 2024. This means that taxpayers will have a smaller amount of tax-free gains to use against their capital gains, and any gains beyond this will be subject to CGT.
What is CGT?
CGT is tax on the profit (or gain) made when you sell or dispose of an asset that has increased in value. Assets can include property, shares, and personal possessions worth over £6,000. The tax is calculated based on the gain made on the sale, and not on the overall value of the asset.
Who do these changes affect?
This reduction in the annual exempt amount will primarily affect those who have assets that have increased in value and plan to sell them after April 2023. Taxpayers who have small gains should consider the benefits of crystallising these gains before 6 April 2023 to fully utilise the £12,300 allowance for 2022-23.
Married couples and civil partners both qualify for the £12,300 allowance, which means that they can effectively double their CGT exemption by transferring assets between each other. Transfers between spouses and civil partners are exempt from CGT, so organising joint ownership of these assets before disposal may be beneficial if each partner is not fully utilising their annual allowance.
How is CGT calculated?
UK Capital Gains Tax is normally charged at a simple flat rate of 20%, and this applies to most chargeable gains made by individuals. However, if taxpayers pay basic rate tax on their income and make a small capital gain, they may be subject to a reduced rate of 10%. Once the total of taxable income and gains exceed the higher rate threshold, the excess will be subject to 20% CGT.
A higher rate of CGT applies to gains on the disposal of residential property (apart from a principal private residence). The rates are 18% for basic rate taxpayers and 28% for higher rate taxpayers.
Get in Touch
If you’re unsure about how these changes will impact you, or how to compliantly minimise your CGT liability, it’s always a good idea to seek advice from a tax professional. At EBS Accountants, we can help guide you through the complex world of tax and provide tailored advice to suit your individual needs. Contact us today to ensure you’re fully prepared for the upcoming changes to CGT reliefs.