Capital gains tax
Understanding Capital Gains Tax (CGT) in the UK: Navigate Your Investments with Confidence
Whether you are a seasoned investor or just exploring investment opportunities, understanding CGT is essential to make informed financial decisions. We aim to demystify tax planning and equip you with the knowledge you need to navigate your investments with confidence.
What is Capital Gains Tax (CGT)?
Capital Gains Tax is a tax imposed on the profits made from the sale or disposal of certain assets. These assets can include:
• Property: Any property you own that is not your primary residence, such as a second home, rental property, or land.
• Investments: This includes stocks, shares, and other financial investments like bonds or mutual funds.
• Business Assets: If you are a business owner, gains from the sale of business assets are also subject to CGT.
How Does CGT Work?
When you sell or dispose of a qualifying asset and the proceeds exceed the original purchase price, you make a capital gain. CGT is then applied to this gain, not the entire amount received. The tax rate you pay depends on your income tax band and the type of asset you sold.
Key Points to Consider:
Annual Exempt Amount:
Each individual has an annual tax-free allowance called the Annual Exempt Amount (AEA). For the current tax year 2023/24, the AEA is £6,000 and for trustees up to £3,000 meaning any gains below this threshold are not subject to CGT.
Tax Rates:
The CGT rates differ depending on your income tax band. For the current tax year, the rates are as follows:
• Basic Rate Taxpayers: 20% up to £37,700
• Higher Rate Taxpayers: 40% £37,701 t0 £125,140
• Additional Rate Taxpayers: 45% Above £124,140
Entrepreneurs’ Relief:
If you are selling or disposing of a qualifying business asset, you may be eligible for Entrepreneurs’ Relief, which provides a reduced CGT rate of 10%.
Losses Offset:
Capital losses can be offset against capital gains, reducing your overall tax liability. Unused losses can also be carried forward to future years.
Tax Allowable Expenses:
In some cases, expenses related to buying, selling, or improving the asset can be deducted from the overall gain, reducing your CGT liability.
Expert Guidance for Optimal Results:
Understanding CGT and its implications can be complex, but you don’t have to navigate it alone. Our team of tax experts is here to guide you through the process, offering personalised advice to help you minimise your tax liabilities while staying compliant with HMRC regulations.
Plan Ahead for a Tax-Efficient Future:
As the tax landscape evolves, strategic planning becomes more critical than ever. Taking proactive steps now can help you optimise your investments and reduce your CGT burden in the long run.