Capital Gains Tax Changes in 2024: What You Need to Know
In the November 2022 budget, changes in Capital Gains Tax were announced that would be staggered across 2023 and 2024. While it may seem daunting, navigating the latest changes in Capital Gains Tax is crucial for those looking to maintain a healthy financial profile. In this blog, we delve into how the Capital Gains Tax changes in 2023 and 2024 may affect your finances and look at strategies for mitigating the impact.
What Is Capital Gains Tax and Why Is It Important?
Capital Gains Tax (CGT) is levied on the profit you make when selling an asset that has increased in value. It's important because it affects how much of the sale proceeds you get to keep and reinvest and could significantly change your financial position.
In our previous blog on Capital Gains Tax Advice, we looked closely at what assets you need to pay CGT on, who needs to pay it, and how to manage your obligations.
Below, we go on to look at the recent changes in CGT.
What Are the Changes in Capital Gains Tax 2023 and 2024?
For the 2023-2024 tax year, the CGT annual exempt amount (AEA) for individuals and personal representatives was reduced to £6,000 and £3,000 for most trustees (someone taking responsibility for money put into a trust for someone else).
When we reach the financial year 2024-2025 and for the foreseeable future, this figure will drop further to £3,000 for individuals and £1,500 for trustees.
How These Changes Impact You
The Capital Gains Tax changes in 2023 and 2024 could impact your financial activity in a number of ways. For example, it could influence asset disposal or investment decisions. You may need to reassess the timing of asset sales or consider a more diverse investment portfolio. For individuals, especially those with significant asset investments, it could result in an increased CGT liability.
Therefore, proactive tax planning is now more critical than ever.
What Strategies Can You Implement to Mitigate the Impact?
With the recent change in Capital Gains Tax and the resulting AEA reductions, exploring avenues to mitigate the impact is vital. These include:
Utilising Allowances: Make full use of the reduced £3,000 AEA. If you have assets to sell, planning disposals to maximise the allowance can be beneficial.
Timing of Sales: If you anticipate a lower-income year, consider delaying asset sales to this period to access potential benefits from a lower CGT rate.
Asset Transfers: Transferring assets to a spouse or civil partner can spread or reduce the CGT burden, as transfers between partners are typically not taxed.
ISA and Pension Investments: These are tax-efficient wrappers that can shield investments from CGT. Not only do ISAs allow for tax-free gains and withdrawals, but they also offer a variety of investment options suitable for different risk appetites and financial goals. Similarly, pensions provide tax relief on contributions, reducing your current income tax while potentially lowering future CGT liabilities as you defer tax until retirement when you may have a lower taxable income.
Offsetting Losses: If you've incurred losses on some assets, they can be set against gains to reduce overall CGT liability, so be sure to include them in your submission.
The Importance of Professional Insight
The tax landscape is complex, and these changes underscore the importance of seeking professional advice. The 2024 CGT changes will require careful planning and consideration. By leveraging the expertise of a financial professional, you can stay informed, be proactive and navigate these changes effectively.
At Keith Graham, our professional, experienced accountants can provide bespoke guidance, ensuring you can take full advantage of available reliefs and exemptions. Remember, the key to effective tax management is not just in response to changes but in anticipating them.
Please get in contact with our team if you'd like to find out more.