The recent reduction in the capital gains tax (CGT) exception has sparked significant interest and curiosity among a wide range of taxpayers across the United Kingdom. As the tax landscape changes, it becomes increasingly essential to understand how this exception may impact your financial situation. You can make informed decisions and navigate your tax obligations more effectively by keeping yourself in the loop about the potential implications of the reduced CGT exception.
Keeping On Top Of The Changes
The reduced Capital Gains Tax (CGT) exception has recently come into effect, bringing significant changes to how individuals are taxed on their capital gains. We have compiled this article to provide an overview of the new exception’s impact on you as an investor or property owner.
It is so important to stay informed about the tax laws and any updates or changes that may occur. If you’re unsure about your tax obligations or need assistance, we advise you to consult with a tax professional or seek guidance from HMRC directly; one of our knowledgeable team members will be more than happy to provide you with personalised advice based on your specific circumstances. Whether you hold shares, have experienced losses in the cryptocurrency market, or own depreciated assets, let’s dive in and understand how these changes can affect you and your taxable gains.
- What Are Capital Gains?
- What Is The Capital Gains Exception?
- The Latest Capital Gains Exception Update
What Are Capital Gains?
Capital gains refer to the profits or financial gains realised when you sell or dispose of a capital asset at a price higher than its original purchase price. Capital assets can include various investments, such as stocks, bonds, mutual funds, properties, precious metals, and even artwork!
When you sell a capital asset, the difference between the selling price (also known as the proceeds) and the original purchase price (referred to as the cost basis) is considered the capital gain. If the selling price is lower than the purchase price, it results in a capital loss.
The unfortunate thing – if you make a taxable gain from selling or disposing of an asset, it is your responsibility to report this to HMRC and pay any applicable tax. Typically, this involves completing a self-assessment tax return, where you declare your capital gains and calculate the tax owed.
What Is The Capital Gains Exception?
Also known as the annual exemption, the capital gains exception enables individuals to exclude a certain amount of their capital gains from taxation when selling particular types of assets. It’s important to note that the capital gains exception applies only to gains made within the defined limit – any gains above the exemption threshold are typically subject to capital gains tax as per the applicable tax rates and regulations.
This exception aims to provide a tax benefit for individuals who make smaller gains from the sale of assets. By exempting these gains up to a certain threshold, the government aims to reduce the tax burden on individuals and encourage investment and economic growth.
The Latest Capital Gains Exception Update
Previously, the annual capital gains exemption was set at £12,300, substantial, right? This exemption allowed individuals to shield a significant portion of their capital gains from taxes; however, as of 6th April 2023, the exemption amount has been reduced to £6,000. And brace yourself for another change, as it is anticipated to decrease even further to £3,000 in April 2024
If you anticipate making substantial capital gains in the future, you might wonder how to mitigate these reductions’ impact. Thankfully, there is a solution: supplementing your annual capital gains exemption with capital losses brought forward from previous tax years; by doing so, you can offset your gains and potentially reduce your tax liability.
To take advantage of this strategy, you need to navigate the process of claiming capital losses effectively. First, claim the capital loss, either on your tax return for the year in which the loss arose or as a separate claim made within four years of the end of the tax year of the loss. For instance, if you incurred capital losses in the 2018-19 tax year, you must claim them by 5th April 2023. Our expert team is more than happy to assist you in making these capital loss claims and ensure that you maximise your tax benefits.
Recent market events, such as the crypto market crash in November 2022, may have resulted in potential capital losses for individuals holding cryptocurrencies. Additionally, you might own shares that have significantly decreased in value or become virtually worthless. If these assets still exist, you may wish to make a negligible value claim, creating a capital loss in the current tax year. Furthermore, if the company in which you hold shares has been dissolved, a capital loss will have crystallised regarding those shares upon dissolution. Our knowledgeable professionals can guide you through the process and help you make the necessary claims.
Knowledge Is Power
Like any financial apprises, keeping up with the latest updates on the capital gains exception is vital when it comes to optimising your tax benefits. But even with the recent reductions in the annual exemption, there are still strategies you can explore; by taking advantage of capital loss claims and seizing opportunities resulting from market events, you can effectively manage your tax liabilities. Our team is ready to assist you in navigating the complexities of capital gains and losses, ensuring that you make the most of the available exemptions and deductions. Contact us today to secure your financial future and gain peace of mind.