Let us say you buy a piece of land, improve it by constructing a property, and then sell it for a profit. You might be tempted to just pay income tax on the sales proceeds like you would for your regular income. But the fact is, you will need to pay a separate Capital Gains Tax (CGT).
There is often a lot of confusion about how CGT works, especially since the rules around it tend to change from tax year to tax year. The rules are also pretty complex with numerous exemptions or weird ‘technical’ inclusions.
That being said, let us dive into some of the things you need to know about the Capital Gains Tax and the rate in 2024.
What is the Capital Gains Tax rate for 2023/24?
First things first – as you might have gathered from the example at the start, you need to pay CGT when you make a profit from selling assets, including land, property, shares, valuables like art or antiques, and cryptocurrency.
(This isn’t an exhaustive list – ask your Capital Gains Tax accountant whether or not CGT applies to any of your sales.)
The Capital Gains Tax rate 2024 for most assets is:
- 10% for your entire capital gain if your overall income is less than £50,270
- 20% for your entire capital gain if your income is above £50,270
The Capital Gains Tax on residential property is 18% and 28% for the same income brackets. However, if you have made a loss on selling your asset, you do not need to pay tax on it.
In fact, you can deduct your capital losses for the year from your capital gains and pay taxes only on the net gains.
What is the Capital Gains Tax allowance for 2023/24?
Good news – you do not have to pay Capital Gains Tax rate 2024 on the total amount of your asset sales! Up to £6,000 of your capital gains are tax-free in 2023/24. However, note that this is a significant drop from the Capital Gains Tax allowance of 2022/23, which was £12,300.
Keep in mind that you cannot share this Capital Gains Tax allowance with anyone, not even your spouse or civil partner. Also, if you do not use all of your allowance in a year, you cannot carry it forward to the next year.
Capital Gains Tax exemptions and deductions
If you are selling your main home that you have used as a private property throughout (ie, you have not rented out all or part of it or used it as a place of business), you do not have to pay any Capital Gains Tax on it.
What is more, this is an automatic tax relief – you do not need to apply separately for it. Another Capital Gains Tax tip to keep in mind is that you only have to pay a fixed rate of 10% when you sell all or a part of your business.
The only requirements are that you be a sole trader who has owned the business for two years or more. Also, remember that the Capital Gains Tax rate 2024 that you will have to pay will depend on exactly what asset you are selling.
How to minimise Capital Gains Tax liability: Top strategies
If the idea of losing your profits to the Capital Gains Tax rate 2024 bothers you, there are several ways for you to save your money! Here are some accountant-approved strategies to do so:
1. Transfer assets to your civil partner or spouse
Spouses or civil partners are taxed separately in the UK for CGT purposes, but are considered ‘connected’ individuals. When they transfer assets while living together, it is neutral for CGT purposes. If the recipient sells the asset later, they are deemed to have acquired it at the original cost to the transferor.
Different rules apply if they are not living together or if the asset transferred is trading stock. Transfers of exempt employee shareholder shares also have different rules. Assets transferred upon death are valued at market price at the time of death with no CGT implications for the deceased.
2. Bring your losses forward
Did you know that capital losses do not have to be incurred in the same year as your capital gains to be offset? You can bring forward unused capital losses from previous years, providing you report them to HMRC within four years of when you disposed of the asset.
3. Give capital assets to charity
You can get both income tax relief and CGT relief when you give qualifying shares, property or land to a charity.
4. Consider if you are selling a chattel
A chattel is a legal term which refers to an item of tangible, movable property – something that can be both touched and moved. There are two categories of chattels on which you do not need to pay Capital Gains Tax. One refers to ‘wasting assets,’ which have a predictable life of 50 years or less.
These include items like business plant and machinery and are tax-free as long as there are no business capital allowances involved.
Non-wasting chattels refer to tangible movable property which is expected to last more than 50 years, for example paintings and jewellery. Those that sell for £6,000 or less are generally tax-free.
5. Consider other kinds of wasting assets too
Apart from chattels, pretty much any asset with a lifespan of under 50 years will be exempt from CGT. These include machinery, furniture, cars and natural resources like coal.
6. Use your Individual Savings Account (ISA) allowance
You can invest up to £20,000 in an ISA (£40,000 as a married couple/civil partnership) and not pay Capital Gains Tax on it.
7. Claim a gift hold over relief
If you sell your assets for less than their value, or give them away outright, with the aim of helping the buyer out, you could be eligible for a gift hold over relief.
Remember, though, that while you may avoid the Capital Gains Tax rate 2024 when giving your asset, the person receiving them may have to pay it if they sell them in turn. There are certain eligibility conditions associated with this.
8. Go for a “bed and ISA”
This is a strategy wherein you sell your investment, get a capital gain, and then immediately buy it back in the form of an ISA so that all future gains on the investment are exempt from CGT. However, you may need to pay stamp duties and other costs during the repurchase. Ask your accountant about how best to handle a transaction like this.
9. Invest in an Enterprise Investment Scheme (EIS)
If you put your capital gain amount in an EIS, you can avoid paying Capital Gains Tax on any gain realised when the shares are disposed of, if you hold the EIS shares for at least three years.
The proviso here is that income tax relief needs to have been given and has not been withdrawn. Once you pull your money out of the company that took the EIS, you will need to start paying tax on that capital gain amount.
Have any doubts regarding Capital Gains Tax rate 2024?
Capital Gains Tax can, admittedly, be a tricky and complex area to get right. This year, like every year, many people are going to end up losing more money to the Capital Gains Tax rate 2024 because they were not aware of the exemptions and schemes they could avail of. Or that the tax free amount has dropped substantially.
We strongly recommend that you talk to our accountants about how best to reduce your CGT on inherited property, Capital Gains Tax on investment property, landlords’ Capital Gains Tax and any other CGT category that might be relevant to you.
And remember, as long as you abide by the rules and are smart about your choices, you would not have to pay a penny more than necessary. Good luck!
Frequently Asked Questions (FAQs)
If you are a building contractor using subcontractors, then potentially yes. You need to file your CIS monthly return within 14 days after the end of the tax month (ending on the 5th of the month). Submit your returns for the previous month to HMRC by the 19th of the current month following the last tax month.
HMRC is extremely strict about all returns! Failing to submit your CIS return on time could lead to monetary penalties or stricter legal action, depending on how late you are. Bear in mind that even if you have not paid any subcontractors in a given month, you still need to file a ‘nil’ return – you can’t skip a month for any reason whatsoever. If you will not be hiring any subcontractors for a while, you can submit a request to HMRC to mark your account temporarily inactive.
