Capital Gains Tax
At PKPI Chartered Accountants, we understand that Capital Gains Tax (CGT) can seem like a complex and daunting aspect of finance. However, with our expert guidance, you can navigate the intricate world of CGT, minimize your tax burden, and ensure that your assets are handled tax-efficiently
What is Capital Gains Tax?
CGT is a tax imposed on the profit or gain realized from selling an asset. If your gains for the tax year do not exceed your yearly tax-free allowance, you are not required to pay CGT. It's essential to note that gains made on the sale of assets like businesses, shares, or properties often surpass the available tax-free allowances, making careful planning and expert advice vital for efficient tax management.
The Capital Gains Annual Allowance
For the 2023/24 tax year, the personal CGT allowance stands at £6,000, marking a significant reduction from the previous year's £12,300. Furthermore, it is scheduled to decrease to £3,000 in the 2024/25 tax year. This annual allowance represents the maximum amount of gains an individual can realize from asset sales within a tax year before being subject to taxation. In certain cases, married couples can combine their allowances, emphasizing the importance of end-of-year tax planning to leverage available tax reliefs effectively.
Who Gets the Annual Exempt Allowance(AEA)
The AEA is available to several categories of individuals, including:
1. Most individuals who live in the UK: This includes regular UK residents who are liable for CGT.
2. Executors or personal representatives of a deceased person’s estate: During the administration period, these individuals can make use of the full AEA.
3. Trustees for disabled people: Trustees managing assets on behalf of disabled individuals can also benefit from the AEA. A lower AEA rate applies to most other trustees.
Capital Gains Advice for Individuals
We provide tailored advice to individuals on managing their CGT liabilities. This includes dealing with the disposal of personal possessions, shares, and, often, the sale of secondary properties. Whether you're navigating the complexities of a buy-to-let property or have become an accidental landlord through marriage or inheritance, our expert team ensures you receive guidance on the most tax-effective methods to minimize your individual tax burden.
Capital Gains Advice for Businesses
Our corporate team specializes in advising businesses and shareholders on their CGT liabilities, which may arise when part or all of a business or its assets are sold. This can encompass various assets, including land and buildings, fixtures and fittings, plant and machinery, shares, registered trademarks, and the sale of goodwill.
Capital Gains Tax Rates
10% and 20% tax rates for individuals: These rates apply to most gains, excluding residential property and carried interest.
18% and 28% tax rates for individuals for residential property and carried interest: If you're dealing with residential property or carried interest, different rates apply.
20% for trustees or personal representatives of someone who has died: For non-residential property, these trustees are taxed at 20%.
28% for trustees or personal representatives of someone who has died for disposals of residential property: For residential property, this rate applies.
10% for gains qualifying for Business Asset Disposal Relief: This used to be known as Entrepreneurs Relief and provides a lower tax rate for qualifying gains.
28% for Capital Gains Tax on property where the Annual Tax on Enveloped Dwellings is paid: In such cases, the annual exempt amount doesn't apply.
20% for companies (non-resident Capital Gains Tax on the disposal of a UK residential property): Companies dealing with non-residential property are taxed at this rate.
What is Inheritance Tax?
Inheritance Tax is a levy imposed on the estate of an individual who has passed away. This encompasses all their assets, including property, money, and possessions. It's essential to note that there are specific thresholds and exemptions that determine whether Inheritance Tax is applicable.
Thresholds and Exemptions
1. Basic Thresholds
Generally, Inheritance Tax is not applicable if:
The value of the estate is below £325,000.
You leave everything above the £325,000 threshold to your spouse, civil partner, a charity, or a community amateur sports club.
2. Additional Threshold for Property Gifts
If you gift your home to your children, including adopted, foster, or stepchildren, or to your grandchildren, your threshold can increase to £500,000. This can significantly impact the amount of Inheritance Tax payable.
3. Combined Thresholds for Married Couples/Civil Partners
If you are married or in a civil partnership and your estate is valued lower than your threshold, any unused threshold can be transferred to your partner upon your passing. This is a valuable provision that can optimize tax efficiency for couples.
Inheritance Tax Rates
The standard Inheritance Tax rate is 40%, and it applies only to the portion of your estate that surpasses the threshold. Let's illustrate this with an example:
Estate Value: £500,000
Tax-Free Threshold: £325,000
In this case, the Inheritance Tax charged would be 40% of the excess value (£500,000 minus £325,000), amounting to £175,000.
Reduced Rate for Charitable Donations
A notable provision allows the estate to pay Inheritance Tax at a reduced rate of 36% on certain assets. To qualify for this reduced rate, you must allocate 10% or more of the estate's net value to charity in your will. (Net value refers to the total estate value minus any outstanding debts.)
Reliefs and Exemptions
1. Taper Relief
Some gifts made during your lifetime may be subject to Inheritance Tax after your passing. Taper relief can potentially reduce the Inheritance Tax on such gifts, making it less than the standard 40%.
2. Business Relief
This relief allows certain assets to be passed on without incurring Inheritance Tax or with a reduced tax bill. It is particularly beneficial for business owners looking to pass on their enterprises to the next generation.
3. Agricultural Relief
For estates that include a farm or woodland, it's essential to explore Agricultural Relief, as it can have a significant impact on the overall tax liability.
Handling Inheritance Tax Payments
Funds from the estate are utilized to settle Inheritance Tax with HM Revenue and Customs. This responsibility typically falls on the executor (if there is a will). Beneficiaries, those inheriting the estate, do not usually pay tax on their inheritance. However, they may have other related taxes to address, such as rental income from inherited properties.