Partner Louise Nelson, in our Wills, Probate, Tax & Trusts team, looks at the impact of the Budget on Capital Gains Tax.
In her inaugural Budget on 30 October 2024 the Chancellor, Rachel Reeves, unveiled changes affecting Capital Gains Tax (CGT), which the Government has said will raise an additional £2.5 billion a year.
What is Capital Gains Tax?
Capital Gains Tax (CGT) is paid on the profits from the sale of any capital assets, which may include additional properties, business assets, shares and certain personal possessions (not cars) worth £6,000 or more.
In 2023/24 the Government’s income from CGT was £15.4 billion, down from £16.9 billion the previous year. Despite less than 1% of the country’s population being subject to Capital Gains Tax last year, it accounted for around 4% of the Treasury’s total tax receipts. This is in contrast to Inheritance Tax (IHT), which typically only generates around 1% of the annual tax take.
How is Capital Gains Tax Calculated and What is Changing?
Individuals are currently exempt from paying Capital Gains Tax on the first £3,000 of profits, or £1,500 if a Trust is involved. Any gains above those thresholds may be subject to CGT, charged at one of two rates depending on whether you pay Income Tax at the higher rate or basic rate.
From 30 October 2024 changes announced in the Budget will take effect to bring disposals, other than of residential property and carried interest, in line with those paid on the disposal of residential property. This means that there will be no need going forward to differentiate between the types of property being disposed of.
If you pay higher rate Income Tax
On gains between 6 April 2024 and 29 October 2024 you will pay:
24% on your gains from residential property, 28% on your gains from ‘carried interest’ if you manage an investment fund and 20% on your gains from other chargeable assets.
On gains from 30 October 2024 onwards you will pay:
24% on your gains from residential property, 28% on your gains from ‘carried interest’ if you manage an investment fund and 24% on your gains from other chargeable assets.
If you pay basic rate Income Tax
The rate will depend on the size of your gain, whether it is from residential property or other assets and your taxable income. You will need to:
- Calculate your taxable income – your income minus your personal allowance (the standard Personal Allowance is £12,570 but if may be higher if you claim certain allowances, for example Marriage Allowance) and any further Income Tax reliefs that apply.
- Calculate your taxable gains.
- Add this amount to your taxable income.
- If the total is within the basic Income Tax band (currently £12,571 to £50,270) you will pay 18% on your gains made from 30 October 2024. For gains made between 6 April 2024 and 29 October 2024, you will pay 10% on your gains (or 18% on residential property and carried interest).
- For any amount above the basic Income Tax threshold, you will pay 24% on gains made from 30 October 2024 (or 28% on carried interest). For gains made between 6 April 2024 and 29 October 2024 you will pay 20% (or 24% on residential property and 28% on carried interest).
The rate applying to Trustees and Personal Representatives will increase from 20% to 24% from 30 October 2024.
Seek Expert Advice on Capital Gains Tax
To ensure that your and your loved ones’ interests are protected and your estate and assets are handled in a tax efficient manner, it is important to seek expert advice in relation to Capital Gains Tax. Please contact our leading Wills, Probate, Tax & Trusts team to find out more.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
