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What is capital gains tax?

In the UK, capital tax is a type of tax that is levied on the gains made from the sale or disposal of certain assets, such as property, stocks, and shares. The two main types of capital tax in the UK are Capital Gains Tax (CGT) and Inheritance Tax (IHT).

Capital Gains Tax (CGT) is a tax on the profit made from selling or disposing of an asset that has increased in value. CGT applies to individuals, partnerships, and trusts. The rate of CGT depends on the taxpayer's income tax band and the type of asset sold. However, there are certain exemptions and reliefs available that can reduce or eliminate the amount of CGT due.

What is the CGT annual exemption and what is changing?

The annual exemption for Capital Gains Tax (CGT) is similar to the personal allowance for income tax. Gains covered by the exemption are not taxed, but any unused exemption cannot be carried forward to be used in another tax year.

The CGT annual exemption will be reduced from £12,300 to £6,000 from 6 April 2023 and then to £3,000 from 6 April 2024.

Taxpayers planning to sell a property or a business this year need to factor in this reduction in the annual exemption.

Taxpayers can offset capital losses made in past or current tax years against gains in a future year. A capital loss can be realised when an asset is sold or destroyed.

Taxpayers can make a negligible value claim to create a capital loss, but the asset must still exist at the time the claim is made, and the asset must have become of negligible value while held by the taxpayer.

HMRC updates a list of quoted shares and securities which have negligible value, but taxpayers may need to provide evidence for worthless unquoted shares.