It comes as no surprise that capital gains tax (CGT) was targeted in the government’s Autumn Statement, with the changes forecast to raise some £1.6 billion over the next five years. The annual exempt amount (AEA) will be cut to £6,000 for 2023/24, with a further, permanent, fall to £3,000 from 2024/25.
The AEA is currently £12,300, so someone with, for example, gains of £20,000 to £25,000 from the sale of shares will have been advised to spread the disposals over two tax years to benefit from two AEAs. With an AEA of just £3,000 from 2024/25 onwards, a disposal would need to be spread over seven or eight years to fully eliminate the gain.
Instead, many investors may prefer to take the full tax hit from an early disposal, especially if they have concerns that CGT rates could be the next target. For a higher or additional rate taxpayer disposing of a buy-to-let property, for example, the reduction of the AEA to £3,000 will mean an additional £2,604 in CGT.
The AEA available to trustees is half the normal level, so for 2023/24 they will have an AEA of £3,000, with £1,500 available from 2024/25.
With a lower AEA, more individuals and trusts will find themselves having to report gains to HMRC. The estimate is that by 2024/25, an additional 260,000 people will be brought into the scope of CGT for the first time.
This will mean filing a self-assessment tax return or making use of HMRC’s real-time CGT service. Dealing with CGT can be a challenge given the complex computational rules and reliefs, plus the one-off nature of the tax.
The reductions to the AEA make planning around capital gains more important than ever.
- Consider utilising the current, more generous, AEA by 5 April 2023.
- Make use of ISAs to shelter gains from CGT.
- Ensure the best use is made of any capital losses – these can be wasted if crystalised in a later tax year to gains.
- Spouses and civil partners can transfer assets between themselves to make the best use of exemptions and capital losses.
- Look at whether holding buy-to-let property in a company structure is beneficial.
HMRC’s guide to reporting and paying CGT can be found here. For detailed guidance on your options, please get in touch.