There are less than two months until changes to the Capital Gains Tax (CGT) allowance announced in last year’s Autumn Statement come into effect.
From April 2023, the amount of profit you can earn tax-free when you sell certain assets will reduce by more than half.
You must pay Capital Gains Tax on gains above your tax-free allowance (called the Annual Exempt Amount), which currently stands at £12,300 per person. However, from April 2023, this allowance will reduce to £6,000. And a year later, it will shrink again by a further 50%, settling at £3,000 from April 2024.
What is Capital Gains Tax?
When you sell an asset that’s increased in value, you may have to pay CGT on the gain you make, i.e., the difference between the price you originally paid for the asset and how much you get for it when you sell.
You must pay CGT when you sell a personal asset worth more than £6k (apart from your car), shares that are not in an ISA or PEP, a property that’s not your main home, or your main home if you’ve let it out or used it for business. You must also pay CGT when you sell business assets.
You only pay CGT on the total gain you make above your annual tax-free allowance. If all your gains in a year are under your tax-free allowance, you do not have to pay CGT.
- CGT rates: Rates for CGT are not changing. Higher-rate taxpayers have to pay 28% on gains from residential property and 20% on gains from other assets.
For basic rate taxpayers, the CGT rate depends on the size of the gain, the individual’s taxable income, and whether the gain is from residential property or other assets. If total income is within the basic rate tax band after subtracting all personal tax reliefs – including the CGT tax-free allowance, a basic rate taxpayer will pay CGT at 10% on gains (or 18% on residential property) and 20% (or 28% on residential property) on any amount above the basic tax rate.
- Reporting & paying CGT: When you sell an asset that’s subject to CGT, you will need to report it on a Self Assessment tax return in the tax year after the sale. If you sell a residential property that’s subject to CGT, you must report and pay any CGT within 60 days of selling the property.
Is it time to sell so you save on Capital Gains Tax?
Are you planning to sell – or considering selling – an asset that will attract CGT? Shares, a second property or something else of value? If you are, the timing of your sale will be critical.
By completing a sale ahead of the introduction of the first change in the annual tax-free allowance on April 5th 2023, you could significantly reduce the amount of tax you have to pay.
For example, consider a couple who are basic rate taxpayers looking to dispose of a second property they jointly own. The initial change to the CGT exemption threshold will reduce their combined tax-free income by £12,600. If the sale completes after April 5th, they’ll have to pay CGT on an additional £12,600: at 18%, this equates to £2,268 – a not insignificant sum of money they could save if they complete on or before April 5th.
A higher-earning couple in the same position and paying CGT at 28% could save themselves £3,528 by selling ahead of the deadline.
Is it time to sell so you save on Capital Gains Tax?
If you’re considering selling an asset in the near future, timing your sale so that it completes ahead of the first change to the CGT threshold on April 5th will reduce your tax bill. Of course, exactly how much you will be able to save will depend on other factors, including your income, personal circumstances and how much you originally paid for the asset you’re selling. But there’s one thing you can be certain of – your CGT liability will be higher for any assets you sell after April 5th.
We Can Advise You on Selling Assets & Help You Save Money
When you dispose of an asset you’ve invested in, you’ll want to keep as much of any profit you’ve made for yourself. It’s always sensible to take professional advice when you sell anything of value, but with the imminent changes to the CGT exemption allowance now added to all the other variable factors, it’s more important than ever.
For advice on all aspects of Capital Gains Tax and the tax-efficient disposal of assets, speak with one of our team today. Call us now on 01235 868888 email us at [email protected]
