As with the Income Tax personal allowances, taxpayers have an annual exempt amount for Capital Gains Tax (CGT) which is forfeited if not used. The annual exemption for individuals in 2023-24 was reduced to £6,000 (from £12,300) and is set to be further halved to £3,000 from April 2024. A married couple each have a separate exemption. This also applies to civil partners who are treated in the same way as married couples for CGT purposes.
To work out capital gains for a tax year, you should take the following steps:
- Work out the gain for each asset (or your share of an asset if it’s jointly owned). Do this for the personal possessions, shares or investments, UK property or business assets you have disposed of in the tax year.
- Add together the gains from each asset.
- Deduct any allowable losses.
If the total gains are less than the relevant annual exempt amount, then no CGT is due. Taxpayers still need to report gains in their tax return if both of the following apply. The total amount they sold the assets for was more than 4 times their allowance and they are registered for Self-Assessment.
Married couples and civil partners should ensure that assets sold at a gain are either jointly owned or that each partner utilises their annual exempt amount wherever possible. Any unused part of the annual exempt amount cannot be carried forward and is forfeited if unused in the current tax year.
CGT is usually charged at a simple flat rate of 20%. If you only pay basic rate tax and make a small capital gain, they may be subject to a reduced rate of CGT of 10%. Once the total of taxable income and gains exceed the higher rate threshold, the excess will be subject to 20% CGT. A higher rate of CGT (8% supplement) applies to gains on the disposal of chargeable residential property.
If you have sold or are planning to sell any assets in the current tax year it is important to ensure that you take full advantage of the annual CGT exemption and arrange your affairs to ensure the optimum CGT position. For example, capital losses are deducted from gains before net gains are calculated. Crystallising a loss that will waste the annual exemption should therefore be avoided.