Capital Gains Tax from April 2023
For the upcoming tax year of 2023 to 2024, the UK government has announced reductions to the Capital Gains Tax (CGT) annual exemption. The update will have tax consequences for everyone. In this article, we explain what Capital Gains Tax is, and outline the upcoming changes to the Annual Exempt Amount (AEA).
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What is Capital Gains Tax in the UK?
The UK definition of Capital Gains Tax is:
Capital Gains Tax is paid on the profits (‘gain’) of the sale or transfer (‘disposal’) of assets.
The tax is not paid on the total sale price of the asset. It is paid on the amount the asset has increased in value (gained) since you obtained it.
For example, if you bought a painting for £15,000, but later sold it for £25,000, you have made a gain of £10,000.
What are assets for Capital Gains Tax?
Generally, Assets subject to Capital Gains Tax include:
- Properties other than your main home (including the sale of inherited properties)
- Shares in companies
- Business Assets
- Personal possessions over the value of £6,000
- Cryptocurrencies such as Bitcoin
- Musical Instruments
What assets are exempt from Capital Gains Tax in the UK?
Nonetheless, many assets are exempt from Capital Gains Tax.
- A property that is your main residence, that you have lived in for at least one year and have not let out. This is known as Private Residence Relief (PRR). Although, this cannot be assumed in all cases and we recommend you seek advice .
- Cars, including vintage & classic cars.
- Shares in an ISA or PEP.
- UK government gilts.
- Premium Bonds.
- Winnings from bets, lottery or similar pools.
- Gifts made to your spouse, civil partner or a charity. You can find out more about lifetime gifts here.
What is the Annual Exempt Amount (AEA)?
The Annual Exempt Amount is the amount of gain any individual may earn free from Capital Gains Tax. This is also known as the Capital Gains Tax allowance.
For the tax year ending on 5 April 2023, the tax-free allowance is £12,300 and £6,150 for trusts.
However, for the upcoming tax year, this amount is being reduced.
What is the Capital Gains Tax Allowance for 2023/24?
In the Autumn Statement 2022, the Chancellor Jeremy Hunt, announced reductions to the Annual Exempt Amount for the upcoming tax year (6 April 2023 -5 April 2024).
- For tax year 2023-2024, the CGT Annual Exemption is £6,000.
- For tax year 2024-2025, the CGT Annual Exemption is £3,000.
What is the Capital Gains Tax Allowance for Trustees for 2023/2024?
However, for most trustees, the Annual Exempt Amount for the upcoming tax years is further reduced.
- For tax year 2023-2024, the CGT Annual Exemption for Trustees is £3,000.
- For tax year 2024-2025, the CGT Annual Exemption for Trustees is £1,500.
If you are a Trustee and would like advice and assistance on the calculation of your taxes, please get in touch.
What rate of Capital Gains Tax will I need to pay?
The CGT rate depends upon your income tax band.
Basic Tax Payer
A Basic rate taxpayer is someone who earns an income of less than £50,270.
If you pay the basic rate of income tax, you will need to calculate your taxable income for that year, add your chargeable gains for that tax year, deducting your Capital Gains Tax allowance.
If the total is still within the basic rate bracket, you’ll pay 10% on your gains or 18% on residential property gains.
You’ll pay 20% (or 28% on residential property) on any amounts above the basic tax rate.
Higher Rate Tax Payer
If you pay the higher rate of income tax, you’ll pay 20% on gains and 28% on residential property gains.
For trustees or businesses
For trustees or businesses, the CGT rates are 28% on residential property and 20% on all other chargeable assets.
Calculating when CGT is payable for trustees is a little more complicated.
There are various instances when CGT becomes payable. Usually, when assets are put into a trust, when assets are taken out of a trust and when a beneficiary receives assets from a trust.
However, this is not always the case and the amount of CGT is dependent upon a variety of factors such as the type of trust, Non-UK resident trusts, allowable costs, other tax reliefs and the Tax-free allowance.
How do I report and pay my Capital Gains Tax?
It is up to individuals to keep track of their annual gains and report their own Capital Gains Tax.
If you sold a residential property in the UK on or after the 27 October 2021, the government require for Capital Gains to be reported and paid within 60 days of the date of completion. For reporting other gains, these must be submitted with the Self-Assessment tax return in the tax year after you sold or disposed of the asset.
However, the government are now also running a ‘real time’ Capital Gains Tax service. This may be used to report gains on assets sold during the tax year of 2021 to 2022 and 2022 to 2023. The service can be found here.
How do I calculate Capital Gains Tax?
To work out how much Capital Gains Tax you need to pay, you need to first work out how much of a gain was made upon the sale of an asset. Then, you must add up the total gains made for that tax year.
Deduction of applicable costs
There are other Capital Gains Tax Reliefs available, for instance the deduction of applicable costs. When you sell a property that does not apply for full Private Residence Relief, you are required to pay Capital Gains Tax on any gain you make, but you are allowed to deduct various costs from the gain. These include estate agents’ and solicitors’ fees and also costs of improvement works such as an extension or a new roof. However, costs related to the maintenance of a home, such as decorating, are not deductible.
Your local tax lawyers
If you require further advice on CGT, we strongly suggest that you contact an accountant. We can recommend local accountants to you, if required.
Please contact our Wills, Trusts and Probate Team who would be happy to help.
We look forward to hearing from you.