Where available, UK taxpayers are entitled to a tax-free annual exemption of £12,300 for 2021/22 on capital gains. Rates are then charged at 10% for any remaining basic-rate band entitlement, with 20% charged on any remaining gains. The basic and higher rates rise to 18% and 28% for both residential property and carried interest.
There are also several important CGT reliefs to consider, such as Business Asset Disposal Relief (BADR). This was previously known as Entrepreneurs’ Relief and applies a CGT rate of 10% to gains realised on sales of trading businesses and shares in a trading company, subject to certain conditions. This is subject to a £1million lifetime limit.
Private Residence Relief is also available on any gain on the sale of your private residence in the UK, which exempts the gain for the period that it is your main residence as well as certain other periods. In many cases, it is straightforward to determine which property is your main residence, although it is possible to nominate a property if you have used more than one property for that purpose.
The CGT rates are historically low and continue to be subject to frequent speculation that they could increase in the near future. While we cannot predict future Budget announcements, the fact that the Chancellor passed up the opportunity to raise rates in 2021 does not necessarily mean that the rates will stay the same in future.
What should you do?
If possible, consider whether enough UK gains can be crystallised each year to utilise the annual allowance. This is particularly important with personal allowances currently being frozen. Also consider whether capital losses can be generated if large gains have already been realised. This may include negligible value claims against worthless assets, where these have not already been realised. It could also involve transfers between spouses before sale, to ensure that any losses are set against other gains. However, this may not always be appropriate, such as if you are envisaging large gains in future years where you think the CGT rate may be higher.
Likewise, if you are planning on making disposals that will crystallise large gains and the circumstances make this possible or advisable, it may be worth making them in this tax year rather than waiting for future tax years where the capital gains tax rates may be higher.
If you have not done so already, you may also wish to review your Business Asset Disposal Relief position, particularly in the light of reductions in the lifetime limit, the most recent being in 2020. These rules have cumulatively changed in recent years and further changes cannot be ruled out.
Finally, if you have more than one home, consider your Private Residence Relief position and whether an election is needed.