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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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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 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.

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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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