Hello, welcome back. Today I am going to explain the changes that have arisen in Capital Gains Tax from the Budget Rachel Reeves announced.
Capital Gains Tax (CGT) is a tax that will not affect everyone. However, it will affect you if you sell or give away an asset – which could be a house, shares in a company or other possessions. It doesn’t apply for main homes, cars or lottery winnings, among other things.
Each year, individuals have an “annual exempt amount” in 2023-2024 this was £6,000. For 2024/25 it’s now £3,000. This means when your gain exceeds £3000 you will then pay CGT on that gain.
The Government has confirmed that it will be raising the rate at which you pay CGT on shares and other assets above £3,000 from 10% to 18% (the lower rate) and from 20% to 24% (the higher rate) from 30 October 2024. Which rate you pay depends on the size of the gains and your income tax rate. The rate at which you pay CGT on residential property – for example second homes or buy-to-let properties – will remain the same.
Here is an example of what this looks like.
You make a gain on or after 30 October 2024. Your taxable income (your income minus your Personal Allowance and any Income Tax reliefs) is £25,000 and your taxable gains are £10,600.
First, deduct the Capital Gains tax-free allowance from your taxable gain. For the 2024 to 2025 tax year the allowance is £3,000, which leaves £7,600 to pay tax on.
Add this to your taxable income. Because the combined amount of £32,600 is less than £37,700 (the basic rate band for the 2024 to 2025 tax year), you pay Capital Gains Tax at 18%.
This means you’ll pay £1,368 in Capital Gains Tax.
If you are selling all or part of your business, you may qualify for ‘Business Asset Disposal Relief’ which would mean that as a sole trader or partnership you would only pay 10% on the gains from that sale. (only for sale of all or part of your business)
So in conclusion, the changes are the CGT allowance from £6000 down to £3000. Tax rates for CGT from 10% to 18% basic rate and from 20% to 24% for higher rate tax payers. I hope this has helped you understand the CGT changes a little more.
See you next time.
