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We’re coming to the end of the tax year 2022/2023. The tax year started on 6th April 2022 and will end on 5th April 2023. Many people will be looking at ways to maximise tax efficiencies as we come to the end of the year. One area to look at is Capital Gains. Here we look at the tax is and what Capital Gains Tax Allowance is available to you.

What is Capital Gains Tax (CGT)?

CGT is the tax you pay on any profit generated when you dispose of an asset that has increased in value. ‘Disposing’ of an asset includes swapping it for something else, selling it, transferring it to somebody else, giving it away as a gift, or getting compensation for it (for example an insurance payment it the asset is lost or destroyed). You will pay tax on the gain, not the total amount of money that was received. For example, if you bought an asset for £50,000 and sold it for £70,000, you would pay tax on the gain i.e. £20,000.

Gains when selling property include two tax rates: –

  • The basic-rate taxpayer – 18%
  • The higher-rate taxpayer – 28%

Other assets:

  • The basic-rate taxpayer – 10%
  • The higher-rate taxpayer – 20%

Each taxpayer is also entitled to a Capital Gains Tax Allowance each tax year.

What is the Capital Gains Tax Allowance for 2022/2023?

Capital gains tax allowance is the amount of profit you can earn from an asset before you are liable for any tax. For the tax year, 2022/2023 it is £12,300. Incidentally, this is the same amount as it was for the previous tax year, 2021/2022.

The personal allowance is increased if your assets are jointly owned with another person. In this circumstance, you can double the amount by using both of your allowances. Furthermore, if you are in a civil partnership or you are married, you are eligible to transfer your assets and be exempt from paying capital gains. One thing to note here, is if you later sell the asset you will be charged for the gain made during the time both of you owned it.

The CGT allowance will be reduced for the 2023/2024 tax year to £6,000, then again for 2024/2025 to £3,000. These changes were announced in the 2022 Autumn Statement.

What Assets Are Exempt and Included From Capital Gains?

The following assets are exempt: –

  • Betting, pools or lottery winnings.
  • ISAs or PEPs.
  • Premium Bonds.
  • UK Government Gilts.
  • Tax on gifts to your husband, wife, civil partner
  • Charitable gifts.
  • Gifts when someone dies are liable for Inheritance Tax, not CGT. These may become liable for Capital Gains if they are disposed of at a later date.
  • Personal possessions under £6,000 and your car, unless it is being used for business.
  • Proceeds from insurance claims.
  • National Savings & Investments products, pensions, and child trust funds.

The following assets are included: –

  • Property that isn’t your main home.
  • Personal possessions worth £6,000 or more, not including your car.
  • Your main home if it is used for business, it’s very large or it’s been let out
  • Business assets.
  • Shares that aren’t in an ISA or PEP.
  • You may have to pay if your assets are overseas

Opportunities to Reduce Your CGT Bill

  • Transfer assets to joint names.
  • Live in your property before letting it out.
  • Sell shares within your CGT allowance.
  • If you’re not married as a couple, choose different main homes.
  • Invest in items that are stand-alone, rather than as a set (in particular collectible items such as paintings and antiques).

Paying Your Capital Gains Tax

Step 1 – Calculate how much taxable income you’ve earned during this tax year.

Step 2 – Calculate the taxable gain (excluding any losses or costs) and deduct the CGT allowance (£12,3000 for 2022/2023 tax year).

Step 3 – Add your taxable capital gain to your taxable income. If your taxable income and taxable capital gain is less than £37,700 you will pay the lower CGT rate. If it is above this, you will pay the higher CGT rate.

Step 4 – Submit your CGT tax return and pay your CGT bill iwithin 60 days of the disposal of the asset.

If you would like advice on your tax affairs please contact us on 0800 802 1311.