UK nationals have, according to HMRC, paid a record-breaking amount of capital gains tax (CGT) for the tax year ending April 2022.
Every year, HMRC publishes data that shows the source of its tax receipts. Between April 2021 and April 2022, 394,000 taxpayers paid £16.7 billion in CGT. On average, the amount of CGT collected by HMRC is increasing by 15% a year.
HMRC’s data reports that 153,000 people paid £9.1 billion in CGT following the sale of property – a considerable increase on the £1.8 billion raised from property sales in 2020-21. This sharp increase reflects many small and accidental landlords leaving the buy-to-let market as rising interest rates and an increasingly tough tax landscape bite.
CGT tax receipts are expected to continue to increase as reliefs become less generous.
In his 2022 Autumn Statement, Chancellor Jeremy Hunt said CGT allowances will drop from £12,300 to £6,000 in 2023 and to just £3,000 in 2024. Gains over these exemptions are taxed at 20%, with CGT on property taxed at 18% for basic rate taxpayers and 28% for higher rate taxpayers.
CGT is often dismissed as a ‘rich person’s tax’, and indeed HMRC’s data points to 45% of receipts coming from just 12% of taxpayers. But with any gain over £3,000 to trigger a CGT liability, more people are likely to be drawn into its net.
Yet it is possible to reduce your exposure to CGT.
Make use of your exemptions.
Everyone can make tax-free gains of up to £6,000 in the tax year to April 2024. This will fall to just £3,000 in subsequent tax years, so if you are planning on selling property, shares or other assets, consider bringing those plans forward.
Don’t forget losses.
Taxpayers often fail to realise that any losses made on assets sold can be offset against gains reducing any CGT due. Losses can be carried forward from the previous four tax years..
Spouses and civil partners.
A transfer of assets between spouses and civil partners is free from CGT – called the ‘no gain, no loss’ rule. Helpfully, it means you can access their CGT exemption if unused. Transfers must, however, be genuine gifts without conditions.
Donations of land, property and shares to a registered charity are free from CGT. Additionally, donations have attractive inheritance tax implications.
Assets free from CGT.
Some assets, such as classic cars, watches and clocks, are free from CGT. HMRC considers them ‘wasting assets’ with an expected lifespan of 50 years.
Invest in EIS or SEIS schemes.
Gains made from investments in the Enterprise Investment Scheme and Seed Enterprise Investment Scheme are free from CGT if held for three or more years or rolled over into further EIS or SEIS schemes.
It is, as always, important taxpayers take specialist advice before selling an asset or taking steps to reduce CGT.
Contact our Private Client Solicitors
The above is accurate as at 15 August 2023. The information above may be subject to change during these ever-changing times. The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.