From 6 April 2024, the Capital Gains Tax (CGT) annual exemption will be reduced from £6,000 to £3,000.
Due to this, more people will have to pay CGT which they might not have been liable to do before.
The Office for Budget Responsibility has estimated that CGT will raise approximately £17.8 billion for the 2023 to 2024 tax year, further rising for the 2024 to 2025 tax year.
What is CGT?
CGT is a tax which is applied and charged if you sell, give away, exchange, transfer or dispose of an asset and make a profit.
The profit (or gain) made on the asset is taxed, rather than the amount of money received for the asset.
If you are in the basic income tax band (£12,571 to £50,270), you will pay 10 per cent on your regular gains and 18 per cent on any gains on a residential property above the annual exemption.
Higher and additional rate taxpayers will pay 20 per cent on their gains and a further 28 per cent on residential property.
You need to understand CGT and how you might be liable to pay it, which can be done through the advice of expert accountants.
To calculate the gain made, you need to compare the sales proceeds with the original cost of the asset (or value when you acquired it).
What does the CGT allowance reduction mean?
Slashing the CGT annual exemption has resulted in large values of profits to be forced into the world of taxes.
Combined with the reduction of income tax thresholds, it now means a higher rate of CGT will be paid compared to previous years, for those who see their income pushed into higher tax brackets.
If you are worried that you are liable to pay CGT, you might wish to consider timing the ‘disposal’ of your assets or alternative forms of ownership; you could do this by, for example, holding buy-to-let investments in a limited company structure.
Due to CGT being paid at a much higher rate than before, the change will significantly affect landlords, second homeowners, and those looking to sell their property.
A reduced CGT allowance is fast approaching, with its introduction date being just around the corner, so it is crucial you know what the reduction means for you and your tax obligations.
If you would like more information and expert advice about your CGT allowance and tax obligations, contact us today.
