11 January 2023
Overview
2023 is set to be another year of change for business owners and individuals alike, with the Autumn Statement having introduced major reforms. One of which being the changes to Capital Gains Tax in the UK. So, what is changing, and how can you prepare for the year ahead?
Changes to tax legislation, including those to Capital Gains Tax (CGT), are set to affect millions across the UK in just a few months’ time. As of April, we’re set to see the tax-free allowance on CGT to be more than halved, which will have a knock on effect when it comes to properties and investments.
This means that if you want to utilise tax free allowances, now could be the perfect time to review your tax plans, ahead of the new financial year.
What are the changes to Capital Gains Tax Allowances?
As it stands, the current tax free Capital Gains annual exemption is £12,300, which is a generous offering, but is set to drop to £6,000, as of April 6th this year. Under current Government plans, the allowance will then half again to £3,000 in April 2024.
Whilst this new tax regime will help to raise from £1.2 billion a year from 2025 - helping to claw back some of the debts incurred as a result of the pandemic – it will have a big impact on those who benefit from the tax-free exemption.
It’s worth noting that despite legislative changes ahead, the actual rate of CGT hasn't changed. CGT rates are not aligned to those of income tax, meaning that they remain at 10% and 20% for all chargeable assets other than residential property which is subject to rates of 18% and 28%.
Who pays Capital Gains Tax?
CGT applies to individuals who make a profit from selling or disposing of chargeable assets, whether this is received directly or via personally held investment portfolios. If you’re liable to CGT, you’ll be facing an extra CGT charge of anywhere between £630 and £1,764 as of April. This is further increased to a potential cumulative amount of £2,604 in the year after.
So, in order to place yourself and/or your business in the best stead possible ahead of the changes, we would highly recommend starting to plan ahead sooner rather than later.
Ways you can prepare for the new tax year…
There are a number of ways you can prepare for the changes ahead of their implementation, including but not limited to:
Reviewing your investment portfolio
One way to start your tax planning is to review your current investment portfolio. This will help you make informed decisions and take actionable steps, especially when it comes to weighing up the increased tax 'hit' with investment benefits.
Consider the tax-free transferral of assets
An asset transferred to an individual’s spouse is tax free, and many individuals currently take advantage of this arrangement. If a couple has separated, doesn’t live together, or chooses to sell their gifted assets then they will not be eligible for this.
However, in the years to come this could become a less attractive option. As CGT allowances shrink, transferral process costs could reduce the potential tax savings - after April 2024, a £3,000 tax allowance will only be worth £840 at most. With this arrangement becoming less attractive, it might be worth considering whether this tax saving method is still right for you.
Speak to an expert about Capital Gains Tax
CGT can be a complex area of tax at the best of times, and with the significant changes on the horizon, navigating your way through the impact of the changes can seem daunting.
If you’re unsure on the next steps to take when it comes to tax planning, we would always recommend consulting an advisor. They will be able to support you throughout the changes and help to create a clear and pragmatic plan ahead of the new financial year, all whilst ensuring you stay compliant.
Supporting you with legislative changes
Our team of specialist tax experts are on hand to support you with any queries or concerns you may have when concerning Capital Gains Tax and your tax planning strategy.
Please feel free to get in touch using the button below.
Author
Ian Haynes
Tax Director
