Capital Gains Tax Update for 2023
The capital gains allowance (that is the amount you can make before paying any tax) reduced to £6,000 on 6th April 2023. It was £12,300 in the year to 5th April 2023.
From 6th April 2024 this falls again to £3,000.
What is Capital Gains Tax (CGT)?
Capital Gains Tax is a tax on the profit when you sell an ‘asset’ (an item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.) that has increased in value. You are taxed on the money you make (the profit) rather than the total amount you receive for that asset.
As an example in simple terms, if you bought a painting for £5,000 and sold it later for £25,000, you’ve made a gain of £20,000 (£25,000 minus £5,000).
What is the current Capital Gains Allowance?
The capital gains allowance was reduced to £6,000 on 6th April 2023, after being £12,300 in the tax year to 5th April 2023. From 6th April 2024 this will fall again to £3,000.
If your assets are owned jointly with another person, you can use both of your allowances, which can effectively double the amount you can make before CGT is due.
If you are married or in a civil partnership, you are free to transfer assets to each other without any CGT being charged.
If you don’t make full use of your CGT allowance in a given tax year, you aren’t allowed to carry it forward to the next.
How do I know how much Capital Gains Tax I have to pay?
In the UK, the amount of Capital Gains Tax you pay depends on the amount of your gain and the type of asset you sold.
Disposal of Property
From April 2020, if you dispose of a residential property (one that is not your private residence) you must report this separately to HMRC within 60 days of the completion date. You must also pay over any CGT due by this date too.
You must set up a separate account with HMRC to report the transaction here.
What is the Capital Gains Tax on a residential property?
CGT on residential property is at the rate of 18% for basic rate taxpayers and 28% for higher rate taxpayers.
There are a number of exemptions and reliefs that can reduce your CGT bill.
You can deduct costs such as conveyancing fees, estate agent fees and costs of improvement works, for example for an extension (normal maintenance costs, such as decorating, do not count).
What if I file my Capital Gains Tax late?
There are penalties for late filing:
- up to 6 months late, a penalty of £100,
- Between 6 and 12 months late, a further penalty of £300 or 5% of any tax due, whichever is greater
- More than 12 months late, a further penalty of £300 or 5% of any tax due, whichever is greater
Interest will also be applied to late payments.
Other CGT disposals
For other gains, if your sales proceeds are more than a certain threshold (£50,000 for 2023/24) you have to report the gain, even if your gains are less than the annual exempt amount.
You can either report any other gains on your self assessment return if you do one, or you can use the CGT real time service and set up an account here.
Real time service
However if you do use the ‘real time service’ you also have to include the details on your tax return if you do one.
And if you are using the real time service, you must report by 31st December in the tax year after you made your gain and pay by 31st January. For example, if you made a gain in the 2023 to 2024 tax year, you need to report it by 31st December 2024 and pay by 31st January 2025.
CGT on disposals which aren’t residential property are charged at 10% for basic rate taxpayers and 20% for higher rate taxpayers.
How do I know if I need to pay Capital Gains Tax?
If you’re unsure whether you need to pay CGT or how much you owe, you should seek professional advice from a tax adviser.
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