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Navigating the Changes to Capital Gains Tax (CGT)

April 2024 saw significant changes to Capital Gains Tax (CGT), marking a pivotal moment for property investors and homeowners. These adjustments, announced in the Spring Budget, aim to reshape property investment. Whether you’re a seasoned investor or a first-time buyer, understanding these shifts is important for confidently navigating the market and making the most of opportunities. Let’s review the changes and explore how they might affect you.

What is Capital Gains Tax?

Before delving into recent changes, it’s essential to grasp the basics of Capital Gains Tax (CGT). CGT is applied to the profit gained from selling an asset that has appreciated. Unlike other taxes, CGT focuses on the gain rather than the total proceeds of the sale. Understanding CGT is important because it directly impacts the amount you get post-sale. 

Key changes in CGT rates

Property owners and investors need to be well-informed about the latest changes to Capital Gains Tax (CGT). Understanding these adjustments can significantly impact your financial decisions and tax liabilities. Here’s a summary of what’s changing:

  • Lowering of higher rate CGT on UK residential property disposals: To boost activity in the residential property market, the Government is lowering the higher rate of CGT on UK residential property disposals from 28% to 24%, effective from the 6th of April, 2024. The lower rate remains unchanged at 18%. This move aims to encourage earlier sales of second homes and buy-to-let properties to increase transaction volumes and inject vitality into the housing sector. Individuals, trustees, and personal representatives involved in residential property transactions are affected by this change.
  • Key changes to CGT allowances and annual exemption amount: There are some important changes to Capital Gains Tax (CGT) allowances. Starting from April 2024, the CGT annual exempt amount is dropping from £6,000 to £3,000. This affects individuals, personal representatives, and trustees for disabled people. Other trustees for the 2024/2025 tax year will have an annual exempt amount of £1,500. 
  • Impact on Furnished Holiday Lets (FHLs): Owners of Furnished Holiday Lets (FHLs) should pay close attention to the changes. While the top capital gains tax rate on the sale of residential property is reduced to 24%, the beneficial tax treatment for FHLs is set to be abolished from April 2025. 

What it means for you

For individuals involved in residential property transactions, the reduction in the higher CGT rate offers a welcome opportunity for potential savings. With the higher rate now set at 24%, there may be more flexibility in managing your finances following the sale of a property. This change eases the tax burden for those handling property transactions, providing more breathing room in financial planning.

If you own an FHL, it’s important to look at your situation and consider your options. 

Navigating the new terrain

In light of these changes, property owners and investors should review their portfolios and tax strategies. Whether you’re planning to buy, sell, or hold onto property assets, understanding the evolving landscape of CGT is key to optimising your financial outcomes. Stay informed, seek advice, and adapt your approach to navigate the shifting terrain of Capital Gains Tax effectively.

Connect with experts

If you’d like some guidance with understanding what’s involved in property investments amidst these CGT changes, our experts are here to help. Contact us today on 01603 630882 or fill out our contact form for personalised help tailored to your needs. 

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Which Assets Do You Not Pay CGT On?

We not only make sure you pay the right taxes by the right deadlines but help you pay as little tax as possible.  Capital Gains Tax (CGT) is a tax on the profit you make when you sell an asset that has increased in value, but some assets that are exempt from CGT in the UK, including:

  • Your main home. You don’t pay CGT on any gains you make when you sell your main home if you have one home and you’ve lived in it as your main home for all the time you’ve owned it.
  • Personal possessions. You don’t pay CGT on gains you make when you sell personal possessions, like furniture or jewellery, up to your annual exemption of £6000. This means that you don’t pay CGT on gains up to this amount, but you do if you’re lucky enough to be the owner of a Banksy and decide to sell for example.
  • Assets held in an ISA or a SIPP. You don’t pay CGT on gains you make when you sell assets held in an ISA or a SIPP. ISAs and SIPPs are tax-efficient savings and investment accounts.
  • Certain business assets. If you’re self-employed or run a business, you may be able to claim relief from CGT on gains you make when you sell certain business assets, including goodwill and intellectual property.

If you’re unsure whether an asset you’re selling is exempt from CGT,  we can help you work out whether you have to pay CGT and what you’ll have to pay. 

Extra tips about CGT and assets

Check out these extra tips to help you keep on top of any potential CGT tax liabilities:

  • Keep good records. It’s important to keep good records of all of your assets, including the date you bought them, the amount paid and any improvements you’ve made to them. This helps you calculate the gains when you sell the asset and makes sure you don’t overpay CGT.
  • Report your gains. If you sell a residential home subject to CGT, you must report the gains to HMRC within 60 days.

If you’re unsure about CGT, always seek professional help. We can help you calculate your gains, show you how to report them to HMRC and make sure you’re not paying more than you need to.