Since April 2023, the UK Capital Gains Tax Allowance (CGT) has undergone significant reductions, with further decreases planned for the following year. For individuals and personal representatives, the allowance has been reduced from £12,300 to £6,000 for the 2023/24 tax year, and it will be further reduced to £3,000 in 2024/25. Trusts have an allowance that is half of the individual allowance, amounting to £3,000 for 2023/24 and £1,500 for 2024/25. With these changes in effect, property portfolio owners must consider whether selling sooner rather than later is a viable option.
Understanding the Reduction in CGT Allowance
CGT is charged on the increase in value on the sale or gift of assets. The rates range from 10% to 28%, depending on the type of asset. However, the disposal of one’s main residence is exempt from CGT, and certain relief options, such as Entrepreneurs Relief, can lower the CGT rate.
Implications of CGT Rates and Exemptions
The CGT rates have historically been lower than income tax rates. The reduction in the annual exempt amount from £12,300 to £3,000 over the next two years reflects the government’s view that the previous allowance was “generous.” Alongside this reduction, the government plans to halve the dividend allowance, aiming to generate over £1.2 billion annually starting from April 2025. The Entrepreneurs’ Relief limit was also reduced from £10 million to £1 million in the previous year.
Preparing for the Change
The reduction in the CGT allowance will have a significant impact on individuals, personal representatives, and trustees. Property portfolio owners should assess the potential CGT liabilities resulting from property sales or transfers. Considering the decreasing allowances and the potential for higher tax burdens in the future, it may be prudent to evaluate whether selling properties sooner rather than later is a favorable option. Seeking professional advice can help property portfolio owners understand the implications of these changes and develop strategies to mitigate the impact.
What to take from this
As the UK Capital Gains Tax Allowance experiences reductions, property portfolio owners must consider whether selling properties sooner rather than later is a strategic choice. With diminishing allowances and the potential for higher tax burdens, evaluating the timing of property sales becomes crucial. Seeking professional advice is essential to navigate the changing CGT landscape and make informed decisions regarding property portfolios. Get in touch with us to discuss your options.