GM Tax

UK CGT - Allowable Deductions & Reliefs

What is capital gains tax?

Capital Gains Tax is a tax on the profit from when you sell (or ‘dispose of’) something (an ‘asset’) that has increased in value.

It is the gain you make that is taxed and not the amount of money you receive.

Some assets are tax-free and you do not have to pay Capital Gains Tax if all your gains in a year are under your tax-free allowance.

Disposing of an asset

Disposing of an asset includes:

  • selling it

  • giving it away as a gift, or transferring it to someone else

  • swapping it for something else

  • getting compensation for it – like an insurance payout if it has been lost or destroyed

Calculating your total taxable gain

Capital gains tax is the amount of tax owed on the profit (aka the capital gain) you make on an investment or asset when you sell it.

It is calculated by subtracting the asset’s original cost or purchase price (subject to any rebasing claims) plus any expenses incurred, from the final sale price along with an associated expenses incurred as a result of the sale.

It is from this figure that any relief claims are then made.

Claimable Deductions

Certain deductions are available for capital gains when they are incurred such as:

·         Legal Fees

·         Estate Agent Fees

·         Stamp Duty

·         Cost associated with the acquisition and disposal

·         Capital improvements to any property subject to any rebasing claims

Relief

Which Capital Gains Tax (CGT) reliefs apply when a person replaces or disposes of an asset used by a business, the whole or part of a business, or shares in a company, such as:

·         Business Asset Disposal Relief (Entrepreneurs’ Relief)

·         Rollover (replacement of business assets)

·         Holdover (gifts)

·         and many more……..

CGT Allowance

You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount).

The Capital Gains tax-free allowance is:

  • £12,300

  • £6,150 for trusts

Further, in the 2022 Autumn Statement, the government announced that the CGT allowance will be cut from £12,300 to £6,000 in 2023-24 and then to £3,000 from April 2024.

CGT rates on property

If you pay higher rate Income Tax

If you are a higher or additional rate taxpayer you will pay:

  • 28% on your gains from residential property

  • 20% on your gains from other chargeable assets

If you pay basic rate Income Tax

If you are a basic rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets.

Tips to help reduce capital gains tax

  • Use your CGT exemption.

  • Make use of losses. 

  • Transfer assets to your spouse or civil partner. 

  • Invest in an ISA / bed and ISA. 

  • Contribute to a pension. 

  • Give shares to charity. 

  • Invest in an Enterprise Investment Scheme. 

  • Claim gift hold over relief.

  • Seek professional advice

It is recommended that you seek professional advice before considering strategic capital gains tax planning to reduce your CGT position in the event of a disposal.

GM Tax also offers the following services:

  • Tax planning advice and guidance with regards to your residency status in Australia and the UK, eligibility for split year treatment and also domicile status in the context of Inheritance Tax (IHT) planning.
  • Preparation of UK tax returns, with all returns submitted to HM Revenue electronically where possible.
  • Advice on the tax position where a property in the UK is being let while a taxpayer is living overseas.
  • Preparation of Australian tax returns, with all returns submitted to the ATO electronically where possible.
  • Assistance to ensure UK or overseas sourced income of those who are non-residents of the UK is properly taxed and is not taxed twice, or double taxed.
  • This last point is particularly relevant to those who have UK or overseas sourced income or capital gains which may also be subject to tax in the country in which the taxpayer is now resident.