Year end Tax Review 2023/2024 – Blog 11 – Capital Gains Tax

The Capital Gains tax (CGT) Annual Exemption Allowance (AEA) is £6,000 for 2023/2024 but is reducing to £3,000 in 2024/2025. Capital Gains above this level are taxed as follows:

• 10% if the gains qualify for Business Asset Disposal Relief (BADR), up to a lifetime limit of £1 million of qualifying gains;

• 10% if the gains qualify for Investors’ Relief, up to a lifetime limit of £10 million;

• 10% (18% for gains in respect of residential property or private equity carried interest) if the gains fall within any unused basic rate band; and

• 20% (28% on residential property or private equity carried interest) for gains above the basic rate band.

Assets transferred between married couples or civil partners do not normally give rise to a CGT charge; instead, the recipient takes over the CGT cost of the donor. This means that, when the asset is eventually sold by the recipient, the gain or loss will reflect the combined ownership period.

Gifts to other family members will produce capital gains or losses, based on the market value at the time of the gift. However, where the asset is a qualifying business asset (e.g. unquoted trading company shares), a joint ‘holdover relief’ election will enable any gain to be deferred.

Non-residents are not generally subject to UK CGT. There is an exception to this rule, however, for disposals of UK immoveable property (i.e. land and buildings) and certain indirect interests in UK immoveable property.

Planning points

• The AEA cannot be carried forward or transferred to a spouse, so where possible aim to make disposals before 6 April 2024 to utilise this year’s AEA, particularly as the amount of the exemption will decrease from this date.

• Consider transferring assets (wholly or partly) to your spouse or civil partner, to utilise their annual exemption or capital losses on a subsequent disposal. Such transfers must be made outright and without preconditions to be effective for tax purposes.

• Consider carefully when you will make any disposal, as the timing of a disposal will determine when any CGT is due and may affect the amount of CGT payable.

Example

David is a basic rate taxpayer (with £7,000 of basic rate band unused) in 2023/2024 but expects to be a higher rate taxpayer in 2024/2025. His sole disposal in 2023/2024 of some non-residential land realises a capital gain of £15,000.

• His taxable gain (i.e. after AEA) is £9,000 and his CGT liability will be £1,100 [(£7,000 @ 10%) plus (£2,000 @ 20%)]

• This would be payable on 31 January 2025.

If, instead, the disposal is made in 2024/2025:

• His taxable gain (i.e. after AEA) is £12,000 and his CGT liability will be fully at 20%, i.e. £2,400.

• This would be payable on 31 January 2026.

Making the disposal before 6 April 2024 will therefore save him tax of £1,300, but the tax will be due a year earlier.

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.