Capital Gains Tax Year-End Planning

by | Jan 21, 2024 | Capital Gains Tax, accountancy, hmrc, Income Tax, MTD ITSA, Self-Assessment, Shares, tax, Tax return

Accountants Chester - Capital Gain Tax Year-End Planning

Accountants Chester – Tax Tip No. 56

No one wants to pay more tax than they need to and, where possible, disposals should be timed to ensure that the best result is achieved from a tax perspective. Where a disposal is made around the end of the tax year, accelerating or delaying the disposal date can impact on the tax that is paid. This is particularly true this year, as the capital gains tax annual exempt amount falls from £6,000 for 2023/24 to £3,000 for 2024/25.

Don’t waste the exempt amount

Each individual has their own annual exempt amount for capital gains tax purposes. It is set against net gains for the tax year (chargeable gains less allowable losses for the year), but before using up any capital losses from previous tax years. The annual exempt amount is lost if it is not used in the tax year – it cannot be carried forward.

Spouses and civil partners are able to transfer assets between. This is useful from a tax planning perspective. If one spouse or civil partner has already used their annual exempt amount and wants to dispose of an asset that would trigger a capital gain, transferring the asset, or a share in it, to the other spouse or civil partner prior to disposal will enable the unused annual exempt amount to be set against the gain.

Timing considerations

When considering whether it is preferable to make a disposal in 2023/24 or wait until 2024/25, it is helpful to consider the following questions:

  1. Have I used up my annual exempt amount for 2023/24?
  2. Will I be a basic rate, higher or additional rate taxpayer in 2023/24?
  3. Have I realised any losses in 2023/24?
  4. Has my spouse/civil partner used their annual exempt amount for 2023/24?
  5. What rate does my spouse or civil partner pay tax at?
  6. Do I expect to realise gains and/or losses in 2024/25?
  7. What rate do I expect to pay tax at in 2024/25?
  8. What rate do I expect my spouse or civil partner to pay tax at in 2024/25?

If you have not made any disposals in 2023/24, it would be better to realise any gain before 6 April 2024 to take advantage of the higher annual exempt amount for 2023/24. Where a spouse or civil partner’s annual exempt amount is available, this can be accessed too by making a no gain/no loss transfer. Making a disposal in 2023/24 rather than 2024/25 can save a couple up to £1,200 in capital gains tax.

The position is slightly more complicated if losses are involved, as allowable losses for the tax year are set against chargeable gains for the same year before applying the annual exempt amount. Unrelieved losses for earlier years are applied after the annual exempt amount. To the extent that allowable losses of the tax year are not relieved against chargeable gains of that year, they can be carried forward.

If you have unrelieved losses for 2023/24 that exceed the chargeable gain, the annual exempt amount would be lost anyway, so there is nothing to be gained by making the disposal before 6 April 2024. Instead, by delaying it, you will be able to set the 2024/25 annual exempt amount against the gain before using the losses carried forward from 2023/24, reducing the overall bill.

If the 2023/24 annual exempt amount has already been used up, when deciding whether to delay the disposal so that it falls in the 2024/25 tax year, it is also necessary to consider the rate at which the gain would be taxed and the overall tax bill. For example, if you are a basic rate taxpayer in 2023/24 but are likely to be a higher rate taxpayer in 2024/25, it may be better to make the disposal prior to 6 April 2024so the gain will be taxed at 10% rather than 20% (or 18% rather than 28% where it relates to residential property), particularly if you are likely to make other gains in 2024/25 that will use up the annual exempt amount.

Planning ahead is the key. Do the sums first and time the disposal accordingly.

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Accountants Chester: FAQ’S

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Capital Gains Tax (CGT) changes for 2024 are important to understand if you're planning to sell assets. Here's what you need to know:

  • Reduced Higher Rate: The higher rate of CGT for gains on residential property has been reduced from 28% to 24% for disposals made on or after April 6th, 2024.
  • Annual Exemption Reduction: The annual CGT exemption amount (the amount of profit you can make before paying tax) will be cut in half from £6,000 to £3,000 starting in April 2024.

Important Considerations:

  • Other Assets: The CGT changes don't affect gains from other assets like shares or business property.
  • Private Residence Relief (PRR): You might still be exempt from CGT if you're selling your primary residence.
  • Seek Professional Advice: Tax rules can be complex. Contact Accountants Chester for personalised guidance on how these changes impact your specific situation.

Capital Gains Tax Accountants Chester

What is the UK capital gains allowance for 2023/24?

The Capital Gains Tax (CGT) allowance for the tax year 2023/24 is £6,000. This means you won't pay CGT on the first £6,000 of profit (gains) you make when selling or disposing of certain assets.

Important Notes:

  • Reduced Allowance: The CGT allowance has been significantly reduced from £12,300 in previous years. It will further reduce to £3,000 in the 2024/25 tax year.
  • Tax Rates: CGT rates are 10% for basic-rate taxpayers and 20% for higher-rate taxpayers (these rates are different for residential property sales).
  • Seek Professional Advice: Tax rules can be complex. For personalised guidance on how CGT applies to your situation, consult Accountant Chester or a tax advisor.

Capital Gains Tax Accountants Chester

While accountants can assist with tax preparation and strategies, the 36-month rule specifically relates to UK Capital Gains Tax (CGT) on property sales. Here's why it's not directly relevant to finding an accountant in Chester:

  • Focus of Accountants: Accountants Chester help with various financial matters like bookkeeping, tax filings and business advice. They might not necessarily specialise in the intricacies of the 36-month CGT rule.
  • Tax Specialists: For detailed questions about the 36-month rule, it's best to consult tax advisors Chester or refer to HMRC (the UK's tax authority) resources.

If you need help with Capital Gains Tax, consider:

Capital Gains Tax Accountants Chester

Capital Gains Tax (CGT) rules in the UK have undergone recent changes. Here's a summary of the key points:

  • Reduced Annual Exemption: The CGT Annual Exempt Amount (AEA) has been significantly reduced. It's currently £6,000 for the 2023/24 tax year and will reduce further to £3,000 from April 2024. This means less profit from asset sales is exempt from tax.
  • Rates Remain the Same: The CGT rates haven't changed. You'll pay either 10% (for basic rate taxpayers) or 20% (for higher/additional rate taxpayers) on gains outside of residential property. Residential property gains are taxed at 18% and 28% respectively.
  • Reporting Deadlines: If you've sold a UK residential property since 6th April 2020, you now have 60 days to report and pay any CGT due, even if you have no other tax to pay.

Important Notes:

  • These are just the key changes. CGT can be complex, with rules affected by the type of asset sold and individual circumstances.
  • Accountants Chester can't give specific tax advice, but they can help you calculate your CGT liability and file your tax returns.
  • Always refer to the official HMRC website for the most up-to-date and comprehensive information: https://www.gov.uk/capital-gains-tax

Capital Gains Tax Accountants Chester

There's no set time period to guarantee avoiding Capital Gains Tax (CGT) in the UK. However, here's the key information:

  • Private Residence Relief (PRR): If you've lived in the property as your main home throughout the entire ownership period, you likely won't pay CGT when selling.
  • Final Period Exemption: The last 9 months of ownership are usually CGT-free, even if you don't live in the property during that time.
  • Other Exemptions/Reliefs: Specific circumstances can allow for further exemptions (e.g., letting periods, job-related absences).

Important Notes:

  • CGT calculations are complex. The rules on what qualifies as your main residence can be nuanced.
  • Accountants Chester can provide personalised advice based on your specific situation and help minimise your tax liability.

Capital Gains Tax Accountants Chester

Several assets are exempt from Capital Gains Tax in the UK. Here's a summary:

  • Your main home: Gains from selling your primary residence are usually exempt.
  • Personal possessions (chattels): Items sold for £6,000 or less (per item) are generally exempt.
  • Cars: Most cars are exempt.
  • ISAs and Premium Bonds: Gains within these accounts are tax-free.
  • Gifts to your spouse/civil partner: Transfers between spouses/partners are usually exempt.
  • Gifts to charity: Donated assets don't incur CGT.

Important Notes:

  • Annual Exempt Amount (AEA): For the tax year 2023/24, your AEA is £6,000. Gains above this amount may be subject to CGT. The AEA will reduce to £3,000 in the 2024/25 tax year.
  • Complex Cases: For business assets, investments, or second homes, it's vital to understand the specific rules and potential reliefs.

Why consult Accountants Chester?

Accountants Chester can provide personalised advice based on your unique circumstances. They can help you:

  • Understand CGT rules: They can explain complex exemptions and reliefs.
  • Minimise your tax liability: Accountants Chester can identify strategies to reduce your CGT bill legally.
  • Ensure compliance: They help you file tax returns correctly, avoiding penalties.

Capital Gains Tax Accountants Chester

The Capital Gains Tax (CGT) annual exempt amount in the UK is currently £6,000 for the 2023/24 tax year. It will further reduce to £3,000 for the 2024/25 tax year. This means you only pay CGT on profits from the sale of assets if they exceed these amounts.

Important points to note:

  • Unused allowances cannot be carried over to future years.
  • Trusts have a separate, lower annual exemption.
  • Spouses and civil partners each have their own allowances.
  • Different rates of CGT may apply depending on your income and the type of asset sold.

It's highly recommended to consult a qualified accountant or tax advisor for personalised advice on capital gains tax, as your specific circumstances will determine your liability. Accountants Chester can offer localised expertise.

Capital Gains Tax Accountants Chester

HMRC may ask you to provide receipts or other proof of purchase to support your Capital Gains Tax calculations. This is especially important for:

  • Recently acquired assets: HMRC is more likely to want proof of your purchase price if you bought the asset recently.
  • Significant improvements: If you've made substantial improvements to the asset, you'll need documentation to justify those expenses.
  • HMRC enquiries: If HMRC investigates your return, they will likely request evidence to support your figures.

Even if not explicitly required, it's wise to keep records like:

  • Purchase invoices or receipts
  • Records of improvement costs
  • Valuations (if you didn't have a clear purchase price)

Important: Capital Gains Tax rules can be complex. Accountants Chester can provide personalised advice on recordkeeping and help ensure you accurately calculate your tax liability.

Capital Gains Tax Accountants Chester

To accurately calculate Capital Gains Tax, you'll need:

  • Proof of what you paid for the asset: Invoices, receipts, etc.
  • Proof of what you sold the asset for: Sale contracts, completion statements.
  • Records of costs: This includes legal fees, agent commissions, and any improvements made to the asset that increase its value.

Confused about the process? A Chester-based accountant, such as Accountants Chester, can make Capital Gains Tax calculations simple and stress-free.

Capital Gains Tax Accountants Chester

Failing to declare capital gains to HMRC (Her Majesty's Revenue and Customs) has serious consequences:

  • Penalties: You could face substantial fines based on the amount of tax owed and the length of time it goes unpaid.
  • Interest Charges: HMRC will charge interest on any unpaid Capital Gains Tax.
  • Tax Investigations: Undeclared gains raise red flags and could trigger a more in-depth investigation into your finances.
  • Potential Criminal Charges: In severe cases of deliberate tax evasion, you could even face criminal charges.

It's never worth the risk. Always declare your capital gains to ensure you are tax compliant.

How can Accountants Chester help?

  • Calculate your gains: Accountants Chester can accurately determine if your asset sales trigger Capital Gains Tax and calculate the amount you owe.
  • Utilise allowances and reliefs: They can help you minimise your tax liability by applying your annual allowance and any eligible reliefs.
  • File correctly: An accountant ensures your tax returns are filed correctly and on time, avoiding unnecessary penalties.

Capital Gains Tax Accountants Chester

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Disclaimer

The information contained in this blog is for general guidance only. It does not constitute professional advice and should not be relied upon as such. Always seek tailored advice from a qualified accountant regarding your specific circumstances.