Changes to Capital Gains Tax (CGT) in 2023

Annual Exempt Amount

Following Royal Assent of the Finance Bill 2023, for the tax year 2023/24 (and so from 6^th April 2023), the annual exempt amount will now be only £6,000 for individuals and personal representatives (half this at £3,000 for most trustees).

This will be halved again for the tax year 2024/25 to £3,000 for individuals and personal representatives (and so £1,500 for most trustees).

Indications are that the annual exempt amount for the tax year 2024/25 will remain fixed for subsequent tax years as the annual uprating of the annual exempt amount with CPI will be abolished.

So, for now… yes.

They are not insignificant. For quite some time, the annual exempt amount has increased incrementally over several years: for the tax year 2014/15 it was £11,000 (£5,500 for most trustees) and by 2020/21 it was £12,300 (£6,150 for most trustees), which is where it has since remained – until now.

These changes are relevant for individuals, personal representatives of someone who has died, and trustees. So if you fall within any of those descriptions and have potential gains coming up, you want to know about this.

Capital Gains Tax (CGT) is payable on overall gains made after the disposal of an asset in any tax year which, after the deduction of any losses and the application of any reliefs, are over the annual exempt amount.

It may be obvious that selling an asset counts as a disposal. However, giving an asset away as a gift, exchanging an asset for something else, or even receiving an insurance payment for an asset that has been lost or destroyed can also be considered a ‘disposal’.

The disposal of an asset can sometimes result in a loss – such is life! However, in those circumstances, you can set that loss against any gains you have made in the same tax year. In fact, losses do not have to be reported immediately as you can claim losses up to 4 years after the end of the tax year in which the disposal took place.

It is worth remembering, however, that there are circumstances where you cannot deduct a loss. For example, when the person you have disposed your asset to is a family member or a ‘connected person’ such as a business partner.

Reliefs are another sort of ‘allowance’ which can come in the form of, for example, a lower tax rate on certain assets (such as Business Asset Disposal Relief) or where you might be able to delay the payment of CGT (such as Gift Hold-Over Relief). You would need to check whether your circumstances qualify for such a relief.

This depends on several factors such as: in which tax year the disposal was made; who made the disposal (whether it was an individual or a trustee or a personal representative of someone who has died); whether a lower rate of tax is available by way of a relief; whether the disposal made was with respect to residential property or not.

For personal representatives of someone who has died and trustees, however, from 6^th April 2017 the CGT rate has been 20% on assets that are not residential property, and 28% on residential property.

This is the amount that you are allowed to have ‘gained’, after having deducted any losses and applied any reliefs, without having to pay CGT on it – i.e. a tax-free allowance. Any balance remaining over the annual exempt amount would be subject to CGT.

The same annual allowance is available to trustees for disabled people and to personal representatives of someone who has died. Personal representatives, however, must remember that in the case of estates, the allowance is available for a limited period only; it is available for disposals made in the tax year in which the death occurred, and for disposals in the following 2 tax years only. In some cases, therefore, it can be prudent for personal representatives to think carefully about how to spread out disposals of an estate.

Stay with us. There’s just a bit more to go…

Yep.

The Reporting Proceed Limit will also change, so that from 6^th April 2023 this will be fixed at £50,000.

The Reporting Proceed Limit is like a measure for whether you need to actually report a gain to HMRC or not.

For example, if the total value of the assets you have sold within a tax year are within the Reporting Proceed Limit, and any gains you have made are within the annual exempt amount – meaning there is no CGT payable –  AND you are UK resident, you don’t need to report the gain at all. Alternatively, if the total value of the assets you sold within a tax year are over the Reporting Proceed Limit, you likely will have to report it and complete a Self Assessment tax return.

These are just two possible examples though – each case is unique and you need to check what applies to your circumstances.

Tax is the gift that keeps on giving! Of course there’s more (and if only we could cover it all).

If you are selling residential property and you have a CGT liability, you need to report this gain online and pay the tax:

Failing to do so could result in penalties.

Depending on your circumstances (such as if you are already in Self Assessment) you may still have to repot this in your Self Assessment return as well.

If you are not UK resident, gains on UK property are reportable online regardless of whether the Reporting Proceed Limit has been exceeded or not, within the same time frames described above. This has applied to indirect disposals and direct disposals of mixed-use properties by non UK residents since April 2020.

And…. breathe!

If you have any questions in relation to the above, or anything else Capital Gains Tax related, contacted our private client solicitors today on +44 (0) 207 228 0017.