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The Future of UK R&D Funding: Tax Credits and Beyond

The UK government has announced an update on its plans for the largest-ever R&D budget from 2022 to 2025, showing its commitment to fostering innovation and technological advancement. The comprehensive strategy for R&D funding, underpinned by significant budget allocations and tax relief reforms, underscores the UK’s ambition to remain a competitive hub for cutting-edge research. Let’s look in more detail at what this means for the future of R&D funding.

Record Budget Allocation for R&D

The UK government has confirmed its largest-ever R&D budget, totalling £39.8 billion for 2022-2025. This unprecedented level of funding, an increase of £5 billion to £20 billion per annum by 2024-2025, represents a 33% rise over the current parliament. The allocations under this budget are poised to strengthen the UK’s R&D system, with the overarching goal of elevating the country as a global leader in science and innovation​​. 

Strategic Investments

The government’s R&D investments are strategically directed to support the UK’s Innovation Strategy, to increase total R&D investment to 2.4% of GDP by 2027. Key areas of focus include climate change, new technology sectors such as clean tech and AI, and levelling up opportunities across the nation. The UK Space Agency will see its budget grow to over £600 million by 2024-2025, emphasising the economic and strategic importance of the space sector​​.

Regional Development

In line with the Levelling Up White Paper, the government has committed to increasing public R&D investment outside the greater South East by at least a third, ensuring fair regional distribution and economic balance. This approach is expected to bolster confidence in business investment in R&D, leveraging private investment and fostering innovation across the country​​.

Reforming R&D Tax Relief

To complement direct budget allocations, the government has introduced significant reforms to R&D tax reliefs, affecting companies under the Research and Development Expenditure Credit (RDEC), the small or medium enterprises (SME) R&D relief, and those with Patent Box elections​​.

Extending Qualifying Expenditure

From April 2023, the scope of qualifying expenditures for R&D tax relief expanded to include the costs of datasets and cloud computing. These changes aim to incentivise R&D using digital approaches and include previously excluded areas like pure mathematics​​.

Refocusing on UK-Based Innovation

To maximise the benefits of R&D activities within the UK, the government is refocusing relief on domestic activity. Restrictions will apply to subcontracted work and costs of externally provided workers, with certain exemptions for specific international research needs​​.

Improving Compliance and Tackling Abuse

All claims for R&D reliefs must be made digitally, with detailed cost breakdowns and descriptions of the R&D projects. Pre-notification to HMRC is required, along with disclosure of any advising agents, aiming to improve compliance and prevent abuse of the system​​.

Future Outlook and Stakeholder Engagement

The government’s target to raise total investment in R&D to 2.4% of GDP by 2027 is ambitious. The R&D tax reliefs are crucial in reducing innovation costs and encouraging private-sector investment. Following extensive stakeholder consultations, reforms to the R&D tax relief system were announced, ensuring that these reliefs remain competitive and up-to-date, and effectively target taxpayer funds towards meaningful innovation​​​​.

Embracing Feedback for Enhanced Guidance

Before announcing its commitment, HMRC published draft guidance reflecting the upcoming reforms to the R&D tax reliefs, taking into account feedback from stakeholders, including industry groups, businesses, and accountancy professionals. This collaborative approach has been vital in refining the guidance, ensuring it effectively addresses the needs and concerns of those engaging in R&D activities​​.

A Dynamic and Robust Future for Research and Development

The future of UK R&D funding is dynamic and robust, marked by substantial government investment and strategic reforms to tax reliefs. These initiatives aren’t just financial mechanisms but represent a concerted effort to cultivate a fertile environment for innovation and technological progress in the UK. 

The focus on regional development, alongside the emphasis on modernising and securing R&D tax relief systems, sets a precedent for sustainable and inclusive growth in the research and innovation sectors. As these changes unfold, businesses and stakeholders in the R&D world can expect to see a landscape ripe with opportunities, supported by a government keen on nurturing a global science and innovation superpower.

Find out more

Find out more about the recent government announcement here

Read the full policy paper ‘Research and Development Tax Relief Reform’ here 

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Non-Residents’ Guide to UK Property Capital Gains Tax

The landscape of Capital Gains Tax (CGT) for non-residents in the UK, especially regarding property, has undergone significant changes in recent years. Understanding these changes is crucial for non-residents who have disposed of or plan to dispose of property in the UK. This guide aims to simplify the complexities of CGT for non-residents, providing a clear overview of what’s required.

Tax if you live abroad and sell your UK home

If you live abroad and sell your UK home, you may need to pay tax on profits since April 2015. It’s important to inform HMRC about the sale within 60 days, even if you don’t owe tax. Tax relief is often available, especially if you’ve spent significant time in the home. However, this relief can be limited if you’ve rented out part of your home, used it for business, or if the property is large. The last nine months of ownership usually qualify for full tax relief, which is longer for those with disabilities or in care.

Key Changes 

  • Extension of CGT for Non-Residents: Since 6 April 2019, non-resident CGT covers both direct and indirect disposals of all UK property or land. This includes residential, non-residential, and mixed-use properties​​.
  • Corporate Entities: From the same date, non-resident companies are subject to Corporation Tax on gains from UK property rather than CGT. This applies to collective investment vehicles and life assurance companies​​.
  • Reporting Requirements: Since 6 April 2020, non-residents must report and pay CGT for disposals of UK property or land, including residential, non-residential, and mixed-use properties​​.

Calculating the Gain or Loss

There are three primary ways to calculate the gain or loss: using the market value as of the 5th April 2015, a time apportionment method, or calculating over the whole ownership period​​​​​​. Getting an accurate property valuation is the owner’s responsibility and, whilst HMRC doesn’t prescribe a specific valuation method, professional valuation is always advisable​​.

  • Rebasing Method: For properties owned before the 6th of April 2015, the standard approach is to use the market value on 5 April 2015 and calculate the difference from the disposal date value​​. Similarly, for assets owned before the 6th of April 2019, the market value as of the 5th of April 2019 is used​​.
  • Time Apportionment: Alternatively, a simple straight-line time apportionment of the whole gain over the ownership period can be used, though this might be more beneficial in case of a loss​​.

Find out more about working out your taxable capital gain or loss with the HMRC Capital Gains Tax calculator here 

Key Reporting and Tax Payment Information for Property Disposals

  • Mandatory Reporting: Disposals must be reported to HMRC even if no tax is due or a loss was incurred​​​​.
  • Reporting Time Frame: The disposal of UK residential property must be reported and any due tax paid within 60 days of selling the property if the completion date is on or after 27 October 2021​​.
  • Online Reporting: Disposals are reported using an online CGT account, requiring specific details about the property and the disposal​​.
  • Self-Assessment Inclusion: If you complete a Self-Assessment tax return, you must include details of the disposal unless it’s your main home and qualifies for Private Residence Relief​​.

Find out more about when and how you need to report disposals and pay Capital Gains Tax if you’re not a resident of the UK here.

Tax Relief and Exemptions

  • Private Residence Relief: Non-residents may qualify for Private Residence Relief, particularly if they, their spouse, or civil partner spent at least 90 days in the UK home during the tax year​​​​.
  • Final Period Relief: Full tax relief is granted for the last nine months of ownership (36 months for disabled or long-term residential care individuals), with some exceptions​​​​.
  • Annual Exempt Amount (AEA): CGT is only payable on gains above the AEA​​. For 2023 to 2024, the AEA for individuals, personal representatives and trustees for disabled people is £6,000. For all other trustees, it’s £3,000. Find out more here.
  • International Treaties: Double Taxation Treaties can affect tax liability, with a requirement to file UK tax returns to claim treaty relief​​.

Compliant and Informed

Understanding and complying with the UK’s CGT requirements for non-residents can be challenging, but it’s essential to avoid penalties and optimise tax liabilities. 

At Norwich Accountancy, we know that everyone’s situation is different. Our specialists can help you navigate the world of UK property as a non-resident, especially for complex cases or significant property disposals. Don’t hesitate to get in touch for advice on staying informed and compliant, and to tackle the topic of tax stress-free.

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How to reduce your Capital Gains Tax

Capital Gains Tax (CGT) is one of those financial terms with the potential to send shivers down anyone’s spine. Often seen as a hindrance, it is a tax levied on the profit gained from selling an asset like property, shares, or valuable possessions. 

While paying tax is a civic duty, there’s no reason you shouldn’t take advantage of legitimate means to reduce your CGT liability. In this blog, we’ll cover some tried and tested strategies to help you minimise your CGT burden.

Understand Your Allowance

Before plunging into complex tax-saving mechanisms, it’s important to understand that the UK has an annual tax-free allowance known as the annual exempt amount (AEA). This is the amount you can make in capital gains without paying any tax. Always take this into account before making any disposals.

For the tax year 2023 to 2024, the AEA is £6,000 for individuals and personal representatives and £3,000 for most trustees. For the tax year 2024 to 2025 and subsequent tax years, the AEA will be permanently fixed at £3,000 for individuals and personal representatives, and £1,500 for most trustees.

How much Capital Gains Tax will I pay?

Again, before looking at ways to minimise your tax payments, it’s good to know how much tax you’ll expect to pay when you sell your assets.

The rates differ if you are looking at gains from residential property and whether you pay a higher rate of Income Tax.

If you pay a higher rate of Income Tax, you’ll pay:-

  1. 28%* on your gains from residential property
  2. 20%* on your gains from other chargeable assets

If you pay basic rate Income Tax, you’ll need to:

  • Work out how much taxable income you have
  • Work out your total taxable gains
  • Deduct your Capital Gains tax-free allowance. 
  • Add this amount to your taxable income.
  • If this amount is within the basic Income Tax band, you’ll pay 10%* on your gains (or 18%* on residential property). You’ll pay 20%* on any amount above the basic tax rate (or 28%* on residential property)

7 Ways to Reduce Capital Gains Tax

  1. Utilise the Spouse Exemption

One of the ways to minimise your Capital Gains Tax is to utilise the spouse exemption. If you’re married or in a civil partnership, you can transfer assets to your spouse or civil partner without triggering CGT. Once the asset is in their name you can utilise both your tax-free allowances, effectively doubling the tax-free amount.

  1. Hold Investments in a Tax-Efficient Wrapper

You might consider holding your investments in an Individual Savings Account (ISA) or a pension fund. Investments within these wrappers can grow and be withdrawn tax-free, offering a legitimate way to avoid CGT. However, bear in mind there are annual limits on contributions to these accounts, so plan wisely.

  1. Offset Your Losses

Another effective way to reduce your CGT is by offsetting capital losses against your capital gains. If you have investments that aren’t performing well, consider selling them to realise a capital loss. These losses can then be used to offset gains, reducing your overall tax liability. You can even carry forward unused losses to offset against future gains.

  1. Make Use of Business Asset Disposal Relief

If you own a business, Business Asset Disposal Relief (formerly Entrepreneurs’ Relief until 2020) could be beneficial. This relief allows you to pay a reduced tax rate of 10% on gains from selling all or part of your business, subject to certain conditions. The lifetime limit for this relief is £1 million, so it’s an excellent way to save on large capital gains.

To qualify for the relief, you must have been a sole trader or business partner for 2 years and owned the business for at least 2 years up to the date you sold your business.

  1. Invest in Enterprise Investment Schemes (EIS)

The EIS is designed to help smaller companies raise finance by offering tax relief to investors. By investing in an EIS-eligible venture, you can defer CGT from other assets as long as the gain is invested in the EIS within a set period. Plus, there are other tax benefits of investing in an EIS, such as income tax relief and inheritance tax exemption.

  1. Make Charitable Contributions

Giving to charity can also help reduce your CGT. If you donate an asset to a registered charity no CGT will be due. Alternatively, you can sell an asset to a charity at less than its market value, which will minimise the capital gain and, therefore, the CGT.

  1. Plan Your Disposals

Timing is everything. Spreading the disposal of assets across multiple tax years can help you maximise your annual tax-free allowance. By planning the timing of your disposals wisely, you can reduce the amount of gain subject to CGT.

Still have questions?

Capital Gains Tax may seem daunting, but there are various strategies to mitigate the amount you pay. By understanding your tax-free allowance, utilising tax-efficient wrappers, and making smart financial decisions, you can minimise your CGT liability and keep more of your hard-earned money. Always remember that failing to plan is planning to fail, especially where taxes are concerned.

If you still have questions about Capital Gains or any other taxes, get in touch or contact us online here

* Remember, these figures can change based on government decisions

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What is the impact of high-interest rates on the UK’s mortgage market?

Interest – it’s what you pay for borrowing money and what banks and building societies pay you for saving money with them. The Bank of England Base Rate is the single most important interest rate in the UK and determines and influences many other interest rates, including those you might have for a loan, mortgage, or savings account. If you have a mortgage or loan, a higher interest rate means your payments may go up. If you have savings, that means you may get a higher return. So, not great news for mortgage holders but better news for savers. 

The UK’s mortgage market is facing challenges as a result of rising interest rates. The Bank of England has been steadily lifting the base rate since December 2021, with 14 increases from 0.25% in December 2021 to 5.25% in August 2023. Understandably, this has a knock-on effect on mortgage rates, which have been steadily increasing, leading to a worrying time for homeowners.

In this article, we’ll look in more detail at the impact of high-interest rates in the UK’s mortgage market and how it can affect you. Hopefully, it’s of ‘interest’ (see what we did there).

Why have interest rates gone up?

Interest rates are closely tied to inflation, and rates have increased because the UK’s inflation is too high. 

Inflation is the increase in the price of something over time. For example, if a loaf of bread costs £1 but £1.05 a year later, then annual bread inflation is 5%. The Office for National Statistics (ONS) tracks the prices of hundreds of everyday items in an imaginary and regularly reviewed “basket of goods” to calculate inflation. Britain has struggled more than other countries with the surging cost of food, a shortage of workers to fill jobs and its heavy reliance on natural gas to generate power and domestic heating, all of which adds to inflation pressure.

Inflation is bad for the economy and hits those who can least afford it the hardest. Raising interest rates is how the Bank of England can help to get inflation back down. The theory behind this is that raising interest rates makes it more expensive to borrow money, meaning people have less to spend, reducing demand and, in turn, inflation.

How high-interest rates affect the housing market

The housing market is intricately linked to the mortgage market, and rising interest rates can lead to a slowdown in both home sales and price appreciation. This dynamic often results in a shift from a seller’s market to a buyer’s market, where buyers have more negotiating power. 

Higher interest rates can affect potential homebuyers who were previously on the edge of their borrowing capacity, potentially pushing them out of the market and adding to a decline in demand and increased downward pressure on prices. As a result, sellers might find it challenging to sell their properties at the price they’d like, resulting in longer listing times. Alternatively, sellers might resort to reducing the price of their home. And when the housing sector experiences a slowdown, construction and related industries can also see a knock-on effect. 

High-interest rates can also influence the decisions of property investors. With higher borrowing costs, the potential return on investment decreases. As a result, some investors might reconsider buying additional properties or may even sell existing ones. This can impact the supply of rental properties in the market, potentially leading to rental price increases as property owners look to offset and pass on their increased costs.

Another important factor in the housing market is the behaviour of lenders. As interest rates rise, they may become more cautious about lending to potential homebuyers, particularly those with higher risk profiles. Stricter lending standards might be implemented, making it more difficult for individuals with lower credit scores or irregular income streams to secure mortgages. This could create barriers to entry for first-time homebuyers and dampen overall housing market activity.

How high-interest rates affect people with mortgages

If you already have a mortgage, high-interest rates can affect you in several ways:

  • The affordability of mortgages. As interest rates rise, so does the cost of borrowing, resulting in higher monthly mortgage payments. The impact will vary depending on individual circumstances; for example, people with high LTV (loan-to-value ratios) mortgages will be impacted more than those with low LTV mortgages. Additionally, if you have a variable-rate mortgage, the cost of your repayments is likely to go up straight away. But if you’re on a fixed rate, you won’t see any change until your fixed period ends.
  • Less disposable income. As interest rates rise and borrowing becomes more expensive, consumer spending can take a hit. When households allocate a larger portion of their income towards mortgage payments, they have less to spend on other goods and services. 
  • The ability to remortgage existing homes. When rates are low, homeowners often refinance to secure lower monthly payments or tap into their home equity. However, this option becomes less attractive when rates are high as consumers have less disposable income. This may lead to people having to sell their homes because they can no longer afford the monthly repayments.
  • Mortgage defaults. Rising interest rates may lead to more mortgage defaults as people struggle to afford their monthly repayments and default on their loans.

How to deal with rising mortgage interest rates

While rising interest rates undoubtedly cause concern for mortgage holders, several factors may mitigate the impact of high-interest rates. 

Government help. There is government help for those who are really struggling, called support for mortgage interest (SMI). This is available to people who receive one of a list of other benefits, including universal credit and income support. For those who qualify, the government pays some of your mortgage interest payments, but in the form of a loan (which must be repaid with interest). Borrowers tend to pay off the loan when they sell the property or when they die.

A growing economy. Another factor that could mitigate the impact of high rates is that the economy is still growing. So, people’s incomes are still rising, which may help them afford higher mortgage repayments. 

As well as these mitigating factors, there are also a few ways to stay in control of your mortgage payments.

Budgeting. You can use a mortgage calculator to work out how your monthly payments might be affected and then create a budget and see if there are any areas where you can cut back. If increases are likely in the future, you can start building up a savings buffer so you can still afford your mortgage when they hit.

Contact your lender. If you’re struggling to pay your mortgage, you should contact your lender as soon as possible. Depending on your circumstances, the lender may offer a range of options, such as reducing the amount you pay for a short period.

Overall, the impact of high-interest rates on the UK’s mortgage market is uncertain. The market may slow down, but it’s also possible that government schemes and a growing economy will help mitigate the impact. Only time will tell how the market will react to rising interest rates. 

If you’re thinking about buying a home, it’s important to factor in the impact of rising interest rates in the future. Think about your circumstances and how you’ll be affected by higher mortgage repayments. In essence, work out what you can afford now and whether you’ll still be able to afford it if rates rise again. 

As always, get in touch if you need to know more, and we’ll be happy to help.

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Class 2 National Insurance Contributions: What You Need to Know

If you’re self-employed in the UK, you may want to pay Class 2 National Insurance (NI) contributions. You may be wondering why anyone would want to hand over their hard-earned cash if it’s not legally required, but your contributions mean you’re eligible for benefits like State Pension, which we’ll cover in more detail below. 

Who Needs to Pay Class 2 National Insurance?

You’ll need to pay Class 2 NI if your profits from self-employment are above the Lower Profits Limit. For the 2023/24 tax year, the Lower Profits Limit is £12,570. But if your profits are below this amount, for example, you’ve just started out, have returned from maternity leave or perhaps you’ve gone part-time, you don’t need to pay any Class 2 NI contributions.

What Are the Benefits of Paying Class 2 National Insurance?

Whilst Class 2 NI contributions aren’t mandatory, there are lots of good reasons why you should keep them up:

  • The age at which you become eligible for a State Pension depends on what year you were born but as a general rule, it’s currently 66.
  • At some point, you may need and be eligible for benefits, such as unemployment benefits or maternity allowance as long as you’ve been self-employed for 26 weeks in the 66 weeks before your due date.

Paying Voluntary Class 2 National Insurance

Even if your profits are below the Lower Profits Limit, you’re still able to pay voluntary Class 2 NI contributions to make sure that you’re eligible for the State Pension and other benefits should you need them. 

How Much Do You Pay?

Currently, the amount of Class 2 NI you’ll need to pay is fixed at £3.45 per week for the 2023/24 tax year. 

When Do You Pay?

Most self-employed people pay their Class 2 NI contributions through their annual self-assessment tax return.

How to Pay Class 2 National Insurance Contributions

Class 2 NI contributions can be paid online, by phone or by post. To pay online, you’ll need to create an account on the HMRC website. To pay by phone, just call HMRC’s self-assessment helpline. To pay by post, download a payment form from the HMRC website.

More on State Pension

As we mentioned above, one of the biggest benefits of voluntarily keeping your Class 2 NI contributions up to date is being eligible for the State Pension when you reach the right age. 

The State Pension is a government-funded payment to people who have reached retirement age and provides them with an income for the rest of their lives. The amount of State Pension you receive depends on the amount of National Insurance contributions you’ve previously paid. If you don’t have enough ‘qualifying years’, you may not be entitled to the full State Pension when you reach retirement age and will have to fund your living expenses (and the things you like to do) some other way. 

Mortgage matters

Plus, depending on your age, such as if you’re applying when you’re above retirement age, if you don’t have enough of a State Pension then it can affect your ability to get a mortgage. This is because lenders will want to see that you have enough income to meet your mortgage repayments. If your State Pension isn’t enough to cover your monthly payments, you may need another source of income, such as a personal pension or a part-time job.

Lenders will also consider your age when they assess your mortgage application. If you’re coming up to retirement age, they may be more cautious about lending to you and wonder whether you’ll be able to work and earn an income in the future.

Some lenders will ask for confirmation of your Class 2 NI contributions. In these situations, they’ll ask to see your copy of your confirmation and that of HMRC to make sure the details match. If they don’t, it may delay the process.

So, if you’re self-employed, it’s important to understand your Class 2 NI obligations to make sure you’re paying the correct amount and reap the rewards of keeping them up to date when you need them. 

Important point on pensions

If you’ve received any correspondence from HMRC regarding tax amounts stating a figure that’s different to what you’ve been told by your accountant, let them know immediately because it could be linked to the Class 2 State Pension.

We hope this blog has been useful but if you’ve any questions about Class 2 National Insurance, please get in touch.

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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.

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How Are the Changes to CGT Impacting Property Investment’S?

In his Autumn Statement in November 2022, Jeremy Hunt, the UK’s Chancellor, announced changes to Capital Gains Tax (CGT). These changes came into effect in April 2023 and have certainly made their mark on property investment and it’s now more expensive for investors to sell properties, reducing the potential profits.

The reduction in CGT allowance

One of the biggest changes is the reduction in the CGT annual exemption, set to drop from £12,300 to £6,000 in 2023/24 and investors will have to pay CGT on any gains made on property sales above the new exemption level. For example, if an investor sells a property for £200,000, making a gain after deducting allowable costs of £100,000, and has already used their annual exemption, they will have to pay CGT on every penny of the £100,000 profit.

The increased CGT for higher-rate taxpayers

Another change making waves is the increase in the rate of CGT for higher-rate taxpayers. If you’re a higher or additional rate taxpayer you’ll now pay 28% on your gains from residential property and 20% on your gains from other chargeable assets.

If you’re a basic rate taxpayer, then the rate you pay depends on a few different things, from the size of your gain to your taxable income and whether your gain is from residential property or other assets.

The changes to CGT have hit some property investors hard as it’s not only now more expensive for investors to sell properties, their potential profits are squeezed and they’re finding it harder to grow their portfolios.

Benefits from the CGT changes

But, believe it or not, there are some potential perks to the CGT changes. The drop in the annual allowance may encourage investors to keep their properties for longer, reducing the number of properties on the market and pushing up prices.

Top CGT tips for property investors

Here are our tips for property investors affected by the changes to CGT:

  • Plan property sales carefully. Plan any property sales and make sure that you sell when you can make the most profit.
  • Consider holding onto properties for longer. Don’t panic sell. Consider keeping properties for longer to potentially avoid paying CGT.
  • Invest in different asset classes. Look at investing in different asset classes, such as stocks and shares, to reduce your exposure to CGT.
  • Seek professional advice. As with all investments and money matters, we always recommend getting advice from a qualified accountant or tax adviser to understand the changes to CGT and how they may affect your investments.

Overall, the changes to CGT have had a mixed impact on property investment. As we’ve seen, it’s now more expensive for investors to sell properties and the potential profits on property sales aren’t what they once were. On the flip side, there are potential benefits, too, like encouraging investors to keep properties for longer and reducing the number of properties on the market for a better balance when it comes to supply and demand. The fewer properties there are to complete with, the higher price you can command for your own bit of bricks and mortar.

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What Is Capital Gains Tax in the UK?

When you sell an asset that has increased in value, such as property, cars or even shares, you will have to pay a tax on the profit, called Capital Gains Tax (CGT). In the UK, the current CGT rates are 10% or 20% for individuals (not including residential property and carried interest).

Why do you need to pay CGT?

If you’ve sold an asset which had increased in value and the gain, or profit, is greater than your annual CGT allowance – this is currently £12,300 for the 2022/23 tax year – you will need to pay CGT on the difference. 

If the gain is less than your annual allowance, you don’t need to pay CGT but you will still need to report the gain on your next tax return. 

When don’t you need to pay CGT?

If you’ve sold an asset which had increased in value and the gain, or profit, is greater than your annual CGT allowance – which for the 2022/23 tax year is £12,300 but will drop to £6,000 for the 2023/24 tax year – and you will need to pay CGT on the difference between your annual personal CGT allowance and the sale price.

If the gain is less than your annual allowance, you don’t need to pay CGT but you will still need to report the gain on your next tax return.

Meeting about tax

How to calculate your CGT bill

To calculate your CGT bill, you need to know how much your gain (profit) is by subtracting the original cost of your asset from the sale price.

For example, if you bought a share for £100 and then sold it for £150, your gain would be £50.

Now you know your gain, apply the relevant tax rate to calculate how much CGT you will need to pay. For the 2022/23 tax year, outlines the CGT rates as:

● 10% and 20% tax rates for individuals (excluding residential property and carried interest)
● 18% and 28% tax rates for individuals for residential property and carried interest
● 20% for trustees or for personal representatives of someone who has died (excluding residential property)
● 28% for trustees or for personal representatives of someone who has died for the disposal of residential property
● 10% for gains qualifying for Business Asset Disposal Relief (previously known as Entrepreneurs Relief)
● 28% for Capital Gains Tax on a property where the Annual Tax on Enveloped Dwellings is paid, the annual exempt amount is not applicable
● 20% for companies (non-resident Capital Gains Tax on the disposal of a UK residential property)

As you can see the rates vary depending on whether you’re an individual or a business and what it is that CGT may apply to. If you’re unsure what rate your gain is subject to, we’re always here to help.

How to pay CGT

How you report and pay your Capital Gains Tax depends on whether you sold a residential property in a residential property in the UK on or after 6 April 2020 or any other asset that’s increased in value in the time between purchasing and selling it.

To report your gain you’ll need to know:

● how much you bought and sold the asset for.
● when you bought and sold the asset.
● any other relevant details, like any costs associated with the purchase, improving the asset and any tax reliefs you’re entitled to.

Here to help

CGT can be a complex and confusing tax but to make sure you’re paying the right amount, it’s important to understand how the tax works. That way you will avoid paying more tax than you need to.

If you’re planning on selling an asset that has increased in value but are unsure whether you need to pay CGT, or how much CGT you owe, our experienced, professional tax advisers at Norwich Accountancy are on hand to help you.

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