There has been a lot of mumbling in the press over the last few weeks about the Government reviewing potential changes to Capital Gains Tax (CGT) in order to help fund the cost of the COVID-19 crisis. Now may be an opportune time to review any assets that you have that would be liable to a CGT charge on disposal. Here’s a brief (but not exhaustive) summary of the current CGT rules which may be of use when considering your CGT position:
- Everyone has an annual CGT allowance of £12,300 (for the tax year 2020/21) which must be used every tax year or the allowance is lost and cannot be carried forward to future tax years. You can, however, carry forward CGT losses from previous tax years to offset against gains in the current tax year.
- Trusts have a CGT allowance of £6,150 (for the tax year 2020/21).
- If you are a higher rate tax payer, two rates of CGT apply. 28% on gains on residential property, and 20% for gains from other chargeable assets.
- If you are a basic rate tax payer, the rate you pay depends on the size of the gain, your taxable income and whether your gain is from residential property or other assets.
- You do not pay CGT when disposing of certain assets such as the sale / disposal of your home (so long as it has been your principal private residence throughout the period of ownership).
In addition, there are steps spouses and civil partners can take to fragment gains between them. Specialist advice from our tax planning team should be sought.
It has been suggested that CGT charges will be aligned with the income tax bracket for individuals, meaning for higher rate tax payers the CGT charge could increase from 20/28% (depending on the asset being disposed of) to potentially 45% if you are an additional rate taxpayer.
Now is therefore a potentially opportune time to review your CGT position and possible exposure, and take steps to mitigate any future CGT liability before the rules applicable to CGT change.
In addition, following the downturn in the market because of COVID-19, now may also be an opportune time to review any assets that have gone down in value (Estate planning in the time of coronavirus making best use of lifetime gifts) to consider whether giving them away now, before they increase back in value, will avoid a CGT charge.
For more information about CGT, please contact our Tax Planning team via our live chat or contact details below.
