In the Autumn Statement delivered by Chancellor Jeremy Hunt, we were anticipating potential changes to capital gains tax – ones that did not come. However, don’t let that distract from the very real changes that will come in 2024.
Changes to capital gains tax
In the 2022 Autumn Statement, Hunt announced that the tax-free allowance (the part of a capital gain that is not taxed) would be reduced from £12,300 to £6,000 in April 2023, and then again to £3,000 in April 2024. The next year, it will reduce further to £1,500.
Why did the Chancellor do this? It’s simple. Amid high inflation, he hopes taking an increased amount of money out of the economy through a higher tax take will slow the rise of consumer prices.
The reduction of the personal allowance will have a significant impact on individuals, trustees and landlords who make a profit (also known as a capital gain) after the sale of an asset or second property.
If a profit is made, the tax usually kicks in on the value of the asset or property that is above the personal allowance at 10% or 20% depending on your income tax band (18% or 28% for property).
Now that the personal allowance is reduced (and will be reduced twice more), more individuals will find themselves filing for and paying capital gains tax.
Filing and paying capital gains tax
Filing and paying capital gains tax involves several steps to ensure compliance with HMRC regulations:
- Calculate the gain: First, determine the capital gain by deducting the original purchase price (or market value at acquisition) from the selling price. Certain costs associated with the sale can be deducted from the gain, such as solicitor fees or improvement costs, ultimately reducing your tax bill.
- Report the gain: If you’ve made a taxable gain, report it to HMRC. This can be done through the annual self-assessment tax return if you’re self-employed or via the capital gains tax real-time service for UK residents. Non-UK residents must use the non-resident capital gains tax return.
- Use allowances and deductions: Remember to apply your tax allowances; HMRC won’t automatically apply them for you.
- Calculate tax owed: After applying deductions and allowances, calculate the tax owed on the gain. The tax rates vary depending on the taxpayer’s income tax band and the type of asset sold.
- Payment: Pay the tax owed to HMRC by the deadline, which is usually by January 31st following the end of the tax year in which the gain was made. Penalties may apply for late payments or incorrect filings.
- Keep records: Maintain accurate records of all transactions, including purchase and sale documents, to support your calculations and filings.
Get in touch
Our final piece of advice: make sure to talk with a professional accountant to ensure you are compliant with all legislation and rules, and that you pay only what you need to. Plus, we could see other changes to capital gains tax, which an accountant will keep you informed of.
Need help with your taxes? Get in touch today. We’ll help you so that you can focus on what really matters to you – your business.