Capital Gains Tax – rate change
Capital Gains Tax – rate change
Speculation that there would be increases to capital gains tax in the Budget on 30 October 2024 was well founded as the rates for some disposals were increased with immediate effect. Here’s a reminder of how capital gains tax works and why acting now could be a good idea.
Capital gains tax explained
Capital gains tax may be due when you dispose of a chargeable asset - by way of a sale or simply making a gift. Chargeable assets include personal possessions worth over £6,000, property that is not your main home or where your main home has been let out/used for business purposes (see here for more details on private residence relief), shares that are not held in an individual saving account (ISA) or business assets owned personally.
Crypto-assets are also chargeable assets - only in exceptional circumstances will HMRC accept that buying and selling of crypto amounts to a trade. HMRC’s latest nudge letters are being sent to taxpayers it suspects of failing to pay the correct tax on their crypto gains.
Capital gains exemptions
No capital gains tax is due when assets are gifted between spouses or civil partners, but there are special rules in the case of divorce. Capital gains tax is also not usually due when gifting an asset to charity. However, if an asset is standing at a loss you may wish to consider disposing of the asset personally to benefit from the loss and then gift the funds to charity.
Calculate capital gains tax
To calculate a capital gain, you deduct the following from the amount you sold the asset for:
- The amount you paid for the asset
- Costs of sale (e.g. estate agent fees)
- Capital improvement costs (e.g. an extension, but normal repair costs such are decorating are not allowable)
Your total taxable gains for the year are then further reduced by any losses realised in the year and unused losses from earlier years. To benefit from capital losses, you need to have made a claim in your tax return (or by writing to HMRC if you are not in self-assessment) within four years of the end of the tax year of disposal. Then the annual allowance of £3,000 for 2024/25, is deducted. The net amount is taxed. Current capital gains tax rates are in two tiers - the top rates are paid by higher/additional rate taxpayers:
- 18% lower rate
- 24% higher rate
For disposals up to 29 October, there were 4 CGT rates - see our Tax Data Guide.
When is capital gains tax paid?
Capital gains tax is due by 31 January after the end of the tax year (i.e. for gains arising in 2023/24 the tax is due by 31 January 2025). However, capital gains tax due in respect of residential property is due within 60 days of completion. See here for more details in relation to the furnished holiday let (FHL) regime being abolished from April 2025.
Business assets
Business Asset Disposal Relief (BADR), previously called Entrepreneurs’ Relief (ER), reduces the rate of capital gains tax on disposals of businesses or business assets to 10%. This will rise to 14% from 6 April 2025 and then match the lower rate of 18% from 6 April 2026. There is a cumulative lifetime limit for qualifying gains of £1 million.
Will capital gains tax rates go up?
The new rates of Capital Gains Tax apply from the day of the Budget, 30 October 2024 and the same rates now apply to all non-business assets.
As always, taking independent investment advice from a professional is important, as is sensible planning for assets held at a loss (for example, a loss may be more valuable after capital gains tax rates have risen).