In his November mini-budget, Chancellor Jeremy Hunt announced changes to Capital Gains Tax that will take effect from the new tax year in April 2023.
Currently you have an annual exemption amount up to £12,300 each tax year (you pay 0%) and any gain above that amount is taxed at a rate that is commensurate with your income tax rate.
The announcement states that the annual exemption amount will be reduced from £12,300 to £6,000 from April 2023, and halved again to £3,000 from April 2024.
Why is this important to know?
Capital Gains Tax is payable when you sell things like buy-to-let properties or investments that are not held in tax exempt wrappers like an ISA or pension.
These changes are likely to impact:
- Second homeowners
- Landlords with buy-to-let properties
- Investors with investments outside tax exempt wrappers like a General Investment Accounts (GIA) or holding individual shares
With the allowance reducing by 50%, if you have property or investments to sell, the timing of this will affect the amount of tax you pay. Selling before the end of the 2022/23 tax year could save hundreds or even thousands of pounds in tax.
More money for the Exchequer
These reduced Capital Gains Tax allowances mean more investors with properties or investment portfolios could face Capital Gains Tax bills in future years when they have not done so up to now. HMRC estimate that an additional 235,000 people may need to report their capital gains!
We are here to help
There are certain planning methods that can be used to help reduce the amount of Capital Gains Tax you pay, for example you can transfer assets to a spouse or civil partner to benefit from their annual exemption limits. Timing of when to dispose of asset or the ability to use losses from other investments. It is important to note though, that sometimes tax is an unavoidable consequence.
If you are worried
To protect your profits, you should act fast and use the current allowance before April if possible. Seek professional advice and explore how you can potentially reduce your Capital Gains Tax bill.
If you have any concerns about your capital gains tax liabilities, speak to your adviser or contact Chilvester to find out any likely impact to you and to understand if you can take any actions.