Capital Gains Tax – Annual Exempt Amount Changes 2023/24 & 2024/25

With the financial whirlwind we were all subjected to in the last quarter of 2022, you’d be forgiven for missing a fairly significant change relating to Capital Gains Tax (CGT).

Currently, an individual has a “tax-free” allowance of £12,300 in each tax year where they can make a gain on a capital asset before a charge is due. Anything over and above that, ignoring acquisition and disposal costs for the purpose of this blog, is taxed at 10% or 20% for non-residential property gains (depending if you are a basic or higher/additional rate tax payer) or 18% or 28% for residential property gains (depending if you are a basic or higher/additional rate tax payer).

The allowance has increased gradually over time, much like the personal allowance had with income tax, until the most recent budget by Chancellor of the Exchequer (Jeremy Hunt). Among other measures, he announced that for the next two tax years beginning 2023/24, the annual allowance for CGT would be reduced by either half or more than half each year. For individuals and personal representatives (executors), in 2023/24 the allowance will be reduced to £6,000 and 2024/25 it will be reduced again to £3,000. This will have a significant impact on individuals but also on estates where assets may have increased in value. For trustees the allowance is half that at £3,000 in 2023/24 and £1,500 in 2024/25. It has been suggested by the Office for Tax Simplification, that an additional 235,000 more people will need to report their capital gains.

Whilst the need to increase tax revenues post pandemic and post Truss “mini-budget” is necessary to balance the books, it does bring into question whether the reduction in the CGT allowance will achieve this or whether it will simply result in a larger volume of returns with only a marginal increase in tax revenue.

Going forward, financial advisors and private client practitioners will need to be much more aware of smaller capital gains in order to guide clients and mitigate their CGT liability in any given tax year.