The capital gains tax (CGT) landscape in the UK is set to undergo a significant shift, with the allowance being halved from £6,000 to £3,000starting April 6, 2024. This change, the lowest in four decades, comes alongside a freeze in tax thresholds, resulting in a broader range of individuals being affected by CGT.
The forthcoming reduction in the CGT allowance is poised to have widespread implications for taxpayers. The move is estimated to generate approximately £17.8 billion in the fiscal year 2023-24, as projected by the Office for Budget Responsibility.
CGT is applicable when you sell, give away, exchange, or otherwise dispose of an asset and realize a profit. It's crucial to note that the tax is not calculated on the amount received for the asset but rather on the gain made from the transaction.
'CGT is charged at the rate of either 10% or 18% for basic rate taxpayers. For higher or additional rate taxpayers, the rate is either 20% or28%,' cautions the Low Incomes Tax Reform Group (LITRG). Individuals falling within the basic rate but pushed into a higher bracket due to the gain will face a combination of both rates.
To compute the CGT, a comparison is made between the sale proceeds (or the asset's value at the time of disposal) and the original cost of the asset(or its value upon acquisition). This calculation method highlights the importance of accurate record-keeping to ensure precise assessments.
Sarah Coles, head of personal finance at Hargreaves Lansdown, emphasises the impact of CGT on investors. She describes it as a "triple threat," affecting the ability to keep pace with inflation, especially as the annual allowance diminishes. The record £16.7 billion paid in CGT for2021-22 raises concerns about the potential for even higher levels of this tax in the coming years, given the reduced thresholds.
The record£16.7 billion paid in CGT for 2021-22 is more than double the inheritance taxpaid in 2022-23, sparking concerns among investors. With further reductions in CGT thresholds in 2023-24 and 2024-25, experts predict a potential surge in CGT payments in the coming years.
As the CGT landscape undergoes changes, it becomes crucial for investors to seek professional advice to navigate these complexities. Elena Meskhi and Co., a leading provider of accounting services in the UK, offers strategic financial guidance to help you make informed decisions in light of the upcoming CGT changes. Don't let these alterations catch you off guard — book a call with Elena Meskhi and Co. today and secure your financial future.
