Expert Capital Gains Tax Advice in Norwich
Gains made on the disposal of most assets are subject to capital gains tax (CGT). The level of CGT you pay is determined by the level of income tax you pay, the nature of the asset you are selling and any relief you might qualify for. The level of CGT you pay is determined by the level of income tax you pay, the nature of the asset you are selling and any relief you might qualify for.
CAPITAL GAINS TAX OVERVIEW
For residential property (unless full main residence relief applies) if you are a higher rate taxpayer you will be liable to CGT of 28% on the disposal of non-business assets, basic rate taxpayers will pay 18%. These rates will also be applicable for individuals who provide investment management services and receive certain Carried Interest returns.
For other types of asset, if you are a higher rate taxpayer you will be liable to CGT of 20% on the disposal of non-business assets, basic rate taxpayers will pay 10%. If you have sold a business asset you may qualify for ‘Business Asset Disposal Relief’ (formerly Entrepreneurs Relief) at a CGT rate of 10% on profits of up to £1 million from 11 March 2020. For disposals prior to 11 March 2020 the limit was £10 million. The flat tax rate of 10% applies regardless of whether you are a basic, higher or additional rate taxpayer. Gains which exceed the lifetime limit of £1 million are taxed at the normal CGT rates.
Tax planning - capital gains
Planning in this area is even more key than usual. When an individual makes a disposal of a chargeable asset, the gain made is chargeable to capital gains tax. There is however, an annual exempt amount which each individual is entitled to, which can be deducted from the gain when calculating the taxable gain. As the name suggests, this amount is an annual total to be used against an all gains in the year; and does not apply to each gain made.
In the 2022/23 tax year the annual exemption was £12,300. This decreased to £6,000 for the (current) 2023/24 tax year and will decrease again for the 2024/25 tax year to £3,000. This decrease will likely mean more individuals will be due to pay capital gains tax on disposals made within a tax year.
Who gets an annual exemption?
All individuals receive an annual exemption unless they are non-domiciled in the UK and have claimed the remittance basis of taxation on their foreign income and gains.
It is also important to note that individuals who are non-resident who may be liable to capital gains tax on the disposal of UK land and property are entitled to an annual exempt amount.
Capital Gains Tax Rates
The rate of Capital Gains Tax (CGT) an individual will incur is dependant partly on the type of chargeable asset they have disposed of, and partly on the tax band into which the gain falls.
Capital gains tax is chargeable at a rate of 10% (for all assets besides residential property) and 18% for residential property for basic rate taxpayers. For higher or additional rate taxpayers, capital gains tax is chargeable at a rate of either 20% (for all assets besides residential property) or 28% (for residential property). A mixture of the basic rate and higher rate will be chargeable for individuals who’s gains straddle the basic rate tax band threshold.
Please note in very specific circumstances, a capital gains tax rate of 10% will apply on the full gain made on a disposal that qualifies for business asset disposal relief (BADR). This only applies to the sale of certain business assets, provided the necessary conditions have been satisfied.
What should you do?
It is important to keep in mind the reduced annual exemption to be introduced from 6 April 2024 onwards. If you wish to dispose of an asset, it may be more beneficial to do so prior to 6 April 2024 (provided there are no other disposals within the tax year) to benefit from the higher annual exemption for the year. If you require any advice in relation the timing of a sale of assets, please do not hesitate to contact a member of the tax team.
If you are considering disposal of any assets, you should consider whether you may benefit from transferring a share to your spouse prior to disposal. The costs of making the transfer (e.g. legal costs) should also be factored in. In addition, it may have an impact on the reliefs available on the sale, e.g. Business Asset Disposal Relief, and you should seek tax advice prior to transferring an asset to your spouse. Legal advice may also be required.
Where there is jointly held property, the share of ownership is a question of fact. It is possible to nominate on form 17 that unequal interests are held in a property. This can assist in tax planning by directing gains to the spouse with the ability to pay less tax when the gains are realised. The form also has effect for income tax purposes, where the income will be split in the same proportion to the capital interest held (otherwise, income on jointly held property is automatically split in equal shares).
It is essential to get the detail of any transfer correct, however, so we recommend speaking to our experts before taking action. Scottish taxpayers pay CGT based on UK rates and bands and therefore should assess the position based on UK rates.
