UK Budget: Capital Gains Tax Updates

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Post on Oct 31, 2024

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UK Budget: Capital Gains Tax Updates

The UK Budget, delivered annually by the Chancellor of the Exchequer, often brings significant changes to the tax landscape. The 2023 Budget was no exception, with a particular focus on Capital Gains Tax (CGT). This article explores the key updates to CGT announced in the budget, highlighting the implications for individuals and businesses.

What is Capital Gains Tax?

Capital Gains Tax is a tax levied on the profit made when you sell an asset that has increased in value. These assets can include:

• Property
• Shares
• Bonds
• Cryptocurrencies
• Art and Collectibles

It's important to note: CGT only applies to profits made from selling an asset. If you sell an asset for less than you paid for it, you won't owe any CGT.

Key Changes Announced in the 2023 Budget:

1. Annual Exempt Amount Reduced:

The most significant change to CGT is the reduction of the annual exempt amount. Previously, individuals could sell assets worth up to £12,300 in a tax year without paying CGT. This has been reduced to £6,000 for the 2023/24 tax year. This reduction will affect many taxpayers, particularly those who regularly trade assets or invest in stocks and shares.

2. Changes to Entrepreneurs' Relief:

Entrepreneurs' Relief was a popular tax break for individuals selling their business assets. This relief allowed them to pay a lower rate of CGT on the first £1 million of gains. The 2023 Budget abolished Entrepreneurs' Relief.

This change will be particularly impactful for entrepreneurs, business owners, and investors looking to dispose of their assets.

3. No Changes to Rates:

While the exempt amount has been reduced, the CGT rates themselves remain unchanged. For most individuals, CGT is levied at 18% for basic rate taxpayers and 28% for higher and additional rate taxpayers.

Implications for Individuals and Businesses:

These changes have significant implications for both individuals and businesses:

For Individuals:

• Higher tax bills: The reduced exempt amount means more people will be liable for CGT, potentially leading to increased tax bills.
• Strategic planning: Individuals need to carefully consider their investment and asset disposal strategies to minimize their CGT liability.
• Reviewing portfolios: Reviewing investment portfolios and potentially adjusting asset holdings may be necessary.

For Businesses:

• Changes to disposal strategies: Businesses need to adapt their disposal strategies for assets, factoring in the reduced exempt amount and the removal of Entrepreneurs' Relief.
• Increased tax burden: The reduction in Entrepreneurs' Relief will likely lead to increased tax bills for business owners selling their assets.
• Business valuation: Businesses may need to re-evaluate their valuations in light of the changes to CGT.

Looking Ahead:

The 2023 Budget brought significant changes to CGT that will impact individuals and businesses alike. It's essential to understand these changes and their implications to navigate the tax landscape effectively. Seeking advice from a qualified tax advisor can help you minimize your CGT liability and optimize your tax strategy.