What is Capital Gains Tax (CGT)?

Capital gains tax (CGT) is a levy imposed on the profit made from the sale of assets. Whether you’re selling shares, property, or other investments, it’s crucial to understand how CGT works to ensure compliance.

 

How CGT works…

 

In the UK, individuals are subject to capital gains tax on the disposal of assets that have increased in value since they were acquired. The rate of CGT depends on various factors such as the individual’s income tax bracket and the type of asset being sold.

 

CGT Tax Rates for 2023/24

 

For the tax year 2023/24, the current capital gains tax rates for individuals are as follows:

 

  • Basic rate taxpayers: 10%
  • Higher rate and additional rate taxpayers: 20%

 

However, gains on the sale of residential property that are not eligible for private residence relief are taxed at 18% for basic rate taxpayers. But, they are taxed 28% for higher and additional rate taxpayers.

 

Annual Exempt Amounts

 

It’s important to note that each individual has an annual tax-free allowance. This is known as the Annual Exempt Amount. For the tax year 2023/24, this amount stands at £6,000. Pleae note that it was reduced from £12,300 from 6 April 2023. It is also due to be reduced further to £3,000 from 6 April 2024. Total gains up to the Annual Exempt Amount are not subject to capital gains tax.

 

Are there any Reliefs?

 

There are various reliefs and exemptions available that can help minimise CGT liabilities. These include:

 

  • Annual Exemption: As mentioned earlier, individuals can utilise the annual tax-free allowance to offset gains below the threshold.
  • Principal Private Residence Relief: Provides relief from CGT on the sale of a property used as your main residence.
  • Business Asset Disposal Relief: This relief applies to qualifying business assets and reduces the rate of CGT to 10% on gains up to a lifetime limit of £1 million.
  • Gift Holdover Relief: Allows individuals to defer CGT when assets are gifted, rather than sold, under certain conditions.
  • ISA and Pension Accounts: Investments held within Individual Savings Accounts (ISAs) and Pensions are typically exempt from CGT.

 

It’s essential for individuals to keep detailed records of their asset acquisitions. The same is similarly true of their disposals. Only then can they accurately calculate their CGT liabilities. Seeking professional advice from a tax adviser can also be beneficial in understanding complex tax rules and optimising tax planning strategies.

 

In Conclusion…

 

Capital Gains Tax is an important aspect of the UK tax system. So, individuals should be aware of it when buying, selling, or gifting assets. The reduction of the Annual Exempt Amount in recent years will likely result in more individuals being required to pay a Capital Gains Tax. Please do get in touch if you’d like our assistance with any CGT related matters.

 

If you’d like to speak to one of our experts about, please call 01243 782 423, or email from our contact page and we will be in touch!

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