More people are now being caught by capital gains tax (CGT) thanks to a steep drop in allowances and an increase in tax rates. Basic rate taxpayers who once paid 10% on their gains are now taxed at 18% while higher rate taxpayers now face 24% – up from 20%.
The annual exempt amount has also been cut significantly. Once £12,300 it now stands at just £3,000. With this lower threshold more transactions are triggering tax bills and many people are being caught unaware.
One of the biggest misconceptions around CGT is that it only applies when something is sold. In fact HMRC treats gifts as disposals unless they are made to a spouse or civil partner. That means giving an asset away can still generate a tax charge – even if no money changes hands.
“If someone gives away a second property to a family member HMRC will calculate the gain using market value not the amount paid” says Vicky Prior, Tax Partner. “It is something we see catching people out time and time again – particularly when gifts are made within families.”
The same applies when assets are exchanged. Even though no cash is involved both parties are treated as having disposed of the asset and must calculate their gain or loss using market value.
Cryptoassets are another area to watch. Using cryptocurrency to pay for something or converting one currency into another – for example Bitcoin into Ethereum – could be considered a disposal that creates a gain.
Despite the tightening of rules there are still a few planning opportunities available. Taxpayers should:
Make use of the £3,000 CGT exemption each tax year as it cannot be carried forward
Consider pension contributions in the same tax year as a disposal which can reduce taxable income and lower CGT rates from 24% to 18%
Realise losses on assets that have fallen in value to offset gains – but avoid wasting the exemption by using losses too early
Couples who are married or in a civil partnership should consider joint planning. By transferring assets between them before disposal they can potentially make use of two CGT exemptions and two basic rate bands.
With more people now within the scope of CGT and HMRC taking a firmer line on reporting it is worth seeking advice before making any major disposals.
HMRC’s guide to CGT (when it is paid, on what, rates and allowances) can be found here.
All data and figures referred to in our news section are correct at the date of publishing and should not be relied upon as still current.
