When an individual makes a disposal of a chargeable asset, the gain made is chargeable to capital gains tax. There is however, an annual exempt amount which each individual is entitled to, which can be deducted from the gain when calculating the taxable gain. As the name suggests, this amount is an annual total to be used against an all gains in the year; and does not apply to each gain made.
In the 2022/23 tax year the annual exemption was £12,300. This decreased to £6,000 for the (current) 2023/24 tax year and will decrease again for the 2024/25 tax year to £3,000. This decrease will likely mean more individuals will be due to pay capital gains tax on disposals made within a tax year.
Who gets an annual exemption?
All individuals receive an annual exemption unless they are non-domiciled in the UK and have claimed the remittance basis of taxation on their foreign income and gains.
It is also important to note that individuals who are non-resident who may be liable to capital gains tax on the disposal of UK land and property are entitled to an annual exempt amount.
Capital Gains Tax Rates
The rate of Capital Gains Tax (CGT) an individual will incur is dependant partly on the type of chargeable asset they have disposed of, and partly on the tax band into which the gain falls.
Capital gains tax is chargeable at a rate of 10% (for all assets besides residential property) and 18% for residential property for basic rate taxpayers. For higher or additional rate taxpayers, capital gains tax is chargeable at a rate of either 20% (for all assets besides residential property) or 28% (for residential property). A mixture of the basic rate and higher rate will be chargeable for individuals who’s gains straddle the basic rate tax band threshold.
Please note in very specific circumstances, a capital gains tax rate of 10% will apply on the full gain made on a disposal that qualifies for business asset disposal relief (BADR). This only applies to the sale of certain business assets, provided the necessary conditions have been satisfied.
What should you do?
It is important to keep in mind the reduced annual exemption to be introduced from 6 April 2024 onwards. If you wish to dispose of an asset, it may be more beneficial to do so prior to 6 April 2024 (provided there are no other disposals within the tax year) to benefit from the higher annual exemption for the year. If you require any advice in relation the timing of a sale of assets, please do not hesitate to contact a member of the tax team.
