The capital gains tax (CGT) allowance is going to be halved from £6,000 to £3,000 in April, the lowest figure for 40 years
The reduced allowance will come into effect from 6 April 2024 and due to the freezing of tax thresholds more people will pay CGT.
Figures show that CGT will raise around £17.8bn in 2023-24, according to estimates by the Office for Budget Responsibility.
CGT is a tax charged if you sell, give away, exchange or otherwise dispose of an asset and make a profit. It is not the amount of money received for the asset that is tax, but the gain made is taxed.
‘CGT is charged at the rate of either 10% or 18% for basic rate taxpayers. For higher or additional rate taxpayers, the rate is either 20% or 28%. If you are normally a basic rate taxpayer but when you add the gain to your taxable income you are pushed into the higher rate threshold, then you will pay some CGT at both rates,’ warned the Low Incomes Tax Reform Group (LITRG).
Broadly, to calculate the gain, you compare the sale proceeds (or value of the asset at the time it was disposed of) with the original cost of the asset (or value when it was acquired).
Sarah Coles, head of personal finance at Hargreaves Lansdown said: ‘Capital gains tax is a triple threat to investors. If their investments outside of tax wrappers keep up with inflation, they’ll be taxed on anything over their annual allowance when they sell up, seriously denting their ability to keep pace with inflation.
‘To make matters worse, the slashing of the allowance to the lowest level in over 40 years means inflation has pushed ever-larger slices of the gain into the realms of tax. And because income tax thresholds have been frozen, more of them will pay a higher rate of CGT into the bargain.
‘The last year we have figures for 2021-22 a record £16.7bn was paid in capital gains tax. This is more than twice as much as the record inheritance tax paid in 2022-23, of just over £7bn, which far more people are concerned about.
‘To make matters worse, the cuts in the CGT thresholds in 2023-24 and 2024-25 mean we could pay even more eye-watering levels of this tax in the coming years.’