Concerned about Capital Gains Tax changes? Here’s what you need to know.
The start of the 2024/25 financial year saw the Capital Gains Tax (CGT) Annual Exempt Amount fall to a historic low of £3,000, down from £6,000 the previous year.
This has raised concerns with asset holders, with new legislation creating a precarious position for those selling high-value assets.
Should I be concerned about CGT?
You only need to consider CGT if you plan to sell (‘dispose of’) a qualifying asset and expect to make a gain – i.e. you sell it for a higher value than when you bought it.
Most personal possessions worth £3,000 or more, as well as second homes, shares or business assets, are subject to CGT, so it’s worth planning your disposal of these assets to maximise your Annual Exempt Amount.
However, one area where concern around CGT is growing is in the cryptoasset sector.
Some cryptoassets are subject to CGT while others are not, such as income derived from the regular trading or mining of cryptoassets, which are considered regular income. The Chartered Institute of Taxation (CIOT) has raised concerns that those who invest in cryptocurrencies and other assets are not fully aware of the tax implications.
From 2024/25 onwards, Self-Assessment returns will have a dedicated section for reporting gains on cryptoasset disposals, but the rules are still unclear.
Additionally, with the widespread popularity of investment in cryptoassets, the CIOT has warned that many individuals will need to pay CGT for the first time, leading to further confusion over liabilities.
Planning for Capital Gains Tax
Although CGT is unavoidable, it is possible to plan around it by timing the disposal of assets in line with each financial year.
For example, consider selling two paintings worth £8,000 and £9,000 respectively.
At the time you purchased them, they were each worth £5,000. You therefore make a gain of £3,000 and £4,000 respectively.
If you sell both within one financial year, you will need to pay CGT at 10 or 20 per cent (depending on your marginal tax rate) on £4,000.
However, if you dispose of the £4,000 asset in the next financial year, you will only pay CGT on the £1,000 of gains outside of the annual exempt amount, subject to other allowances.
You may also be able to claim reliefs on certain assets, such as Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) on the sale of a company or shares in a company, which can cut the CGT rate to just 10 per cent for higher and additional rate taxpayers.
A note for property owners
One of the changes announced by the Chancellor in the 2024 Spring Budget was a decrease in the amount of CGT payable on the sale of second or additional homes for those paying the higher or additional rate of tax, to 24 per cent.
This makes it more tax efficient to dispose of a CGT-liable property – designed to incentivise the sale of second homes and investment properties to stimulate the housing market.
One thing to note is that Private Residence Relief will continue to apply, meaning the sale of your home is exempt from CGT so long as you only own one home, you have lived in it as your main residence for all the time you have owned it, and you have not let out part of it.
For advice on Capital Gains Tax and your liabilities, please contact our team today to discuss your requirements.
