Reducing Capital Gains Tax (CGT)

With the recently elected Labour government now in place, we await the next Budget detailing tax changes.

The Labour government has not ruled out making changes to Capital Gains Tax (CGT) and there has often been rumours of changes to CGT rates and reliefs. As such, now is a key time to take advantage of the current CGT rates, allowances and reliefs if you are thinking of selling assets, such as property and company shares.

The next Budget is expected to be in September at the earliest, but a Budget can be called at any time, with any tax changes potentially taking effect from midnight on the day of the Budget.

In the Spring budget, it was announced that higher rate CGT on residential property sales was reduced from 28% to 24%. However, if CGT rates are aligned with income tax rates, which the Labour government have previously suggested, the higher rate CGT could become 45%, a significant increase.

If you are already in the process of selling property, it would therefore be beneficial, if possible, to complete the sale before any increase in CGT rates is announced.

Similarly, if planning to reduce potential Inheritance Tax liabilities, consideration could be given to a gift or below market value sale of assets to family members, to potentially ‘bank’ the current gain at a lower CGT rate.

In recent years, we have seen the annual exemption reduce from £12,300 to £3,000. It is possible that this could be reduced further or be scrapped. A key planning area is to ensure that you are utilising your annual exemption each year if possible.

Another relief that has been reduced in recent years is Business Asset Disposal Relief (BADR), which was formerly known as Entrepreneurs’ relief. Previously gains of up to £10m on business assets could be taxed at 10% if certain criteria were met, this is now reduced to £1m. There have been rumours of this relief potentially being scrapped altogether, so if you are in the process of selling shares in your business, you should aim to have this completed prior to the next Budget.

Another key area is to ensure that if you have made any capital losses that these are reported to HMRC, either via a tax return or in writing within four years. These losses can then be offset against gains in a future tax year.

If you are considering selling assets and would like to discuss the CGT implications, please contact your local Perrys branch. For sales of property, please contact the property team on 01732 882488.