Budget Speculation: how Capital Gains Tax may change.
Senior Lawyer, Private Client
Budget Speculation: how Capital Gains Tax may change.
One month today, on 30 October, the new Government will reveal their autumn budget. In the first of our series by our specialist estate planning team, we look at the possible changes to various tax regimes.
Will there be a review of the Capital Gains Tax (‘CGT’) rules? Many experts are speculating that that the new Government will cut back on the allowances for CGT and raise the rate of this tax. What effect could that have on individuals and for executors/trustees, and is there anything that can be done in anticipation?
What is CGT?
Capital Gains Tax is charged (in some cases) when you sell or gift an asset for more than you bought it for – in other words, on the gain. There are currently many exemptions and allowances to this, but these could be reduced by the budget.
When does CGT apply?
If you own your own home and live in it, you will not usually pay CGT on the sale proceeds (even if you sell for more than you bought) because you are entitled to ‘Principle Private Residence Relief’ (also known as PPRR). This means you are exempt from paying CGT when you sell your home.
This relief only applies to your main home, not a second or additional property – even if you do not let it out but use it as a holiday home for your family. There are various allowances (currently) that can be offset against a gain on the sale and it will depend upon your own personal circumstances as to how much any final CGT bill will be. It is really important to know that CGT is payable even if you gift the property to your family. The bigger the gain in value, the bigger the tax bill. This is why early estate planning is important if you wish to gift properties; but currently the CGT regime is a different one to the Inheritance Tax provisions.
Capital Gains tax does not just apply to properties, but also to shares not held in ISAs, parcels of land, holiday homes, works of art, jewellery and digital assets (ie cryptocurrency etc).
What allowances do I have available and what are the current rates of CGT?
Until a few years ago (tax year 2022/2023), every person had an individual allowance of £12,300 per year. Any gain made that fell within this allowance was usually exempt from tax. In 2023, the government reduced this to £6,000, and again reduced it to £3,000 in 2024. There are different allowances for trusts and estates, and if you are an Executor/Trustee you must seek advice so as not to be personally liable.
The rates of tax have also changed. The current rate of CGT for second properties is 18% for basic rate tax payers and 24% for higher rate. The current rates of CGT for other assets are 10% and 20% for basic and higher rate taxpayers respectively.
What changes could be made?
The personal allowance may change, may even be removed all together.
The rate of CGT could also increase, and some of the other allowances could be removed.
What could this mean, what can you do?
If only we knew now! The best advice is to understand your current position and to think long term about estate planning with this understanding. Take advice so as to fully understand your options and the implications – this applies whether or not the budget brings in changes to CGT.
Our team of experts here at Giles Wilson can assist in planning how to manage your estate for the benefit of your future, and that of your family.
