CAPITAL GAINS TAX
The CGT annual exemption is set to fall to a new low this year, as announced in the Autumn Statement 2022. From 6 April 2024, the exemption is £3,000, rather than £6,000. Government figures suggest that by 2024/25, more than a quarter of a million more individuals and trusts will be within scope of CGT for the first time as a result. The change makes tax efficiency all the more important.
Each individual has their annual exemption, so for couples, it makes sense to ensure that each party makes full use of this. In some circumstances, this may be achieved by transferring assets between you. Spouses (but not cohabiting couples) can usually transfer assets between them on a no gain/no loss basis for capital gains purposes.
Where one spouse is a higher rate taxpayer, and the other has not made full use of their basic rate band, for instance, a transfer of assets has the potential to give access to the 10% tax rate, rather than the 20% tax rate. It is important that any transfer is outright and unconditional: do please talk to us beforehand to make sure your transfer is effective for tax purposes.
10% (18% on residential property) for UK basic rate taxpayers.
20% (28% on residential property) for UK higher and additional rate taxpayers.
Scottish taxpayers pay CGT based on UK rates and bands, and therefore need to assess their position based on UK rates.
Government figures suggest that by 2024/25, more than a quarter of a million more individuals and trusts will be within scope of CGT for the first time as a result.
If you sell a home that has always been your main or only residence for all the time that you have owned it, any gain should be covered by CGT Private Residence Relief (PRR). There are qualifying conditions for PRR: eligibility assumes, broadly, that the house is not let out; that no part of the home is used exclusively for business purposes; that the grounds, including all buildings, do not exceed 5,000 square metres in total; and that it was not purchased to make a gain.
The position is not always straightforward, however. Where, for example, a delay in selling means a property is let out and another purchased before the first is disposed of, the capital gains position can become complicated quite quickly.
Change in the last few years has reduced what is called ‘final period exemption’, which gives PRR for a specified period, even if someone is not living in the property. For property sold prior to 6 April 2020, this covered the final 18 months of ownership.
Now it is only available for the final nine months of ownership. There are different provisions for someone who is disabled or in long-term residential care, and here PRR extends to the final 36 months of ownership.
Finally, it may be helpful to be aware that HMRC does sometimes challenge the availability of PRR. ‘Residence’ is not defined in the legislation.
Married couples can only count one property as their main residence for CGT purposes. This can be problematic if both parties are homeowners. In this situation, it’s possible to decide which of the two properties you wish to nominate as your main residence and notify HMRC of this. We can advise further.
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HMRC isn’t simply looking at how long a property is occupied. It’s looking for a ‘degree of permanence, continuity and the expectation of continuity’ to establish that a dwelling is being used as a residence, and what it calls the ‘quality’ of occupation is generally very important here. This extends to factors like sitting down for a meal, doing laundry and spending leisure time at a property.
HMRC is increasingly on the lookout for income and gains made from cryptoassets. Spring Budget 2023 announced that the design of the self- assessment tax return is to be adapted to reflect this.
From 2024/25, the capital gains tax pages will specifically ask for information on income and gains from crypto transactions.
The buying and selling of cryptoassets is usually treated as a personal investment, bringing it within the CGT regime. With the CGT annual exemption falling, it will become more important to monitor any crypto transactions you may make.
HMRC has recently launched a new service to allow someone to voluntarily disclose any unpaid tax on income or gains from cryptoassets, including exchange tokens, such as bitcoin, non-fungible tokens and utility tokens. The service is essentially designed to bring someone’s affairs up to date where transactions giving rise to capital gains were made in the past, rather than in the current tax year. We would always recommend professional advice before using HMRC disclosure facilities like this.
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