The capital gains tax (CGT) environment in the UK can be a minefield for both individuals and businesses. With frequent changes to legislation and varying rates depending on asset types and income levels, staying informed is crucial to managing your tax liabilities effectively.
As of 2024, here’s an overview of the current landscape of capital gains tax in the UK.
What is Capital Gains Tax?
Capital gains tax is levied on the profit made from selling or disposing of an asset that has increased in value. It’s important to note that it’s the gain that is taxed, not the total amount received from the sale. This tax can apply to various assets, including property, shares, and business assets.
Current Rates and Allowances
For the 2024/2025 tax year, the CGT rates and allowances are as follows:
- Annual Exempt Amount: Individuals can make gains of up to £3,000 tax-free each tax year. For trusts, this amount is £1,500.
- Basic Rate Taxpayers: 10% on gains (18% on residential property and carried interest) that fall within the basic income tax band.
- Higher and Additional Rate Taxpayers: 20% on gains above the basic rate threshold.
- Residential Property and Carried Interest: Higher rates of 28% and 28% apply to gains from the sale of residential property (that isn’t your main home) and carried interest.
Reliefs and Exemptions
Several reliefs and exemptions can help reduce the amount of CGT payable:
- Private Residence Relief: Gains made from the sale of your main home are generally exempt from CGT.
- Entrepreneurs’ Relief: Now known as Business Asset Disposal Relief, this allows qualifying business owners to pay a reduced rate of 10% on gains up to £1 million over their lifetime.
- Investors’ Relief: Offers a 10% CGT rate on gains from the disposal of qualifying shares in an unlisted trading company, subject to a lifetime limit of £10 million.
Recent Changes and Potential Reforms
In recent years, the UK government has made several changes to CGT rules, and there are ongoing discussions about potential reforms. Notably, the Office of Tax Simplification (OTS) has recommended aligning CGT rates more closely with income tax rates, which could significantly impact the tax landscape if implemented.
Recent changes include the reduction of the CGT annual exempt amount, and stricter reporting requirements for residential property sales, requiring taxpayers to report and pay CGT within 60 days of the sale.
Compliance and Planning
Given the complexities of CGT, effective tax planning is essential. This includes keeping accurate records of asset purchases and sales, understanding the timing of disposals to maximize available allowances, and seeking professional advice to navigate the rules and make the most of reliefs and exemptions.
Conclusion
The current capital gains tax environment in the UK presents both challenges and opportunities for taxpayers. By staying informed about the latest rules and potential changes, and by engaging in proactive tax planning, individuals and businesses can manage their CGT liabilities more effectively.
At The Tax Shop Group, we specialise in providing expert advice and tailored strategies to help you navigate the complexities of capital gains tax.
For more information or to discuss your specific situation, please contact us at team@taxshopgroup.com or call 01604 800282
