Capital Gains Tax - time to sell?

With speculation rife that changes to capital gains tax may be imminent, including the possibility that the capital gains tax rate will be increased in the Labour government’s first Budget on 30 October 2024 - here’s a reminder of how capital gains tax works and why considering taking action 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. 

Cryptoassets 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 / 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% or 24% for residential property
• 10% or 20% for other assets.

Paying capital gains tax 

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%. There is a cumulative lifetime limit for qualifying gains of £1 million.

Will capital gains tax rates go up? 

Current capital gains tax rates are low in historic terms and significantly lower than the current income tax rates (up to 45%), so rumours that rates could rise are, perhaps, not surprising. This may happen from Budget day, although a rise could also only take effect as from 6 April 2025. 

It is also possible that, either alongside a rate increase, or regardless of a rate increase, some of the exemptions and reliefs from capital gains tax (including those detailed above) could be curtailed or removed altogether.

Clearly, timing an asset disposal so that you pay tax at the current low levels could mean you pay less tax than you would otherwise but, 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).