Where available, UK taxpayers are entitled to a tax-free annual exemption of £12,300 for 2022/23 in respect of capital gains realised in the year. The annual exemption will be reduced to £6,000 for 2023/24 and to £3,000 for 2024/25.
Gains in excess of the annual allowance (and not relieved by same year or brought forward losses) are then charged to tax at 10% for any remaining basic-rate income band entitlement, with 20% charged on any remaining gains. The basic and higher rates of CGT rise to 18% and 28% for disposals of 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 relief is subject to a lifetime limit of £1million of qualifying gains (i.e. a maximum saving of £100,000).
Principal Private Residence (PPR) relief is also available on any gain on the sale of your main residence, which exempts the gain for the period that the property 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 more than one residence at a given time.
The CGT rates are historically low and, while speculation about a rise in the rate has calmed significantly in recent months, an uplift in the rate of CGT cannot be ruled out in the Chancellor’s budget on 15 March 2023. An increase in the rate of CGT could be implemented from the date of the budget, as opposed to from 6 April 2023.
It is worth noting that many UK residential property disposals must now be reported to HMRC within 60 days of the completion of the sale. Certain exemptions from this accelerated filing requirement apply but advice should be sought as HMRC can impose late filing and payment penalties and interest.
What should you do?
If possible, consider whether enough gains can be crystallised each year to utilise the annual allowance. Also consider whether capital losses can be generated before 6 April 2023 if large gains have already been realised, or whether you have any brought forward losses from previous years available. 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 anticipate large gains in future years.
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 CGT 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. The availability of PPR relief can also be complicated where the garden or grounds of a property exceed 0.5 hectares (c.1.2 acres) and this is an increasing area of HMRC enquiry on relevant disposals.