Generally, any capital gains made by individuals are taxed at a lower rate than income, meaning taxpayers benefit from a separate annual exemption. This covers the first £12,300 of gains made annually; however, this is changing.
For the tax year 2023-2024, the exception will be reduced to £6,000 and lowered further to £3,000 for 2024-2025. Any annual exemption not used in a tax year cannot be carried over to the next.
What Will Be The Impact?
By lowering the annual exemption, many more individuals will now have to report capital gains on a self-assessment tax return. When the gain arises from the disposal of residential property in the UK, it must be reported using the UK property service within 60 days of sale completion – tax must also be paid by this deadline. This 60-day report is required as well as the annual tax return.
For gains within the basic rate band and those subject to business asset disposal relief, the main capital gains tax (CGT) rates will remain at 10%. All other gains will be at 20%, aside from those made from a residential property which will be taxed at 18% within the basic rate band and 28% at higher rates.
Since 2009, the inheritance tax threshold (nil-rate band) has been fixed at £325,000 per person; this will remain the same until at least April 2028.
Suppose an individual leaves an interest in their main home to one or more children or another direct descendant. In that case, they will also benefit from the nil-rate band worth a further £175,000 per person. This rate is frozen until April 2028; however, the value of residential properties has increased significantly since it was first introduced in 2020-2021.