In the second post in our Budget series, we take a look at Capital Gains Tax, and the main provisions of the recent Budget as they may affect you and your family.
CGT annual exemption
The government has announced that the CGT annual exempt amount will be reduced from £12,300 to £6,000 from 6 April 2023 and to £3,000 from 6 April 2024.
CGT rates
No changes to the current rates of CGT have been announced. This means that the rate remains at 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains, mainly chargeable gains on residential properties, with the exception of any element that qualifies for Private Residence Relief.
There is still potential to qualify for a 10% rate, regardless of any available income tax basic rate band, up to a lifetime limit for each individual. This is where specific types of disposals qualify for:
- Business Asset Disposal Relief (BADR). This is targeted at directors and employees who own at least 5% of the ordinary share capital in the company, provided other minimum criteria are also met. It can also apply to owners of unincorporated businesses.
- Investors’ Relief. The main beneficiaries of this relief are investors in unquoted trading companies who have newly-subscribed shares but are not employees.
Current lifetime limits are £1 million for BADR and £10 million for Investors’ Relief.
60 day CGT reporting for UK residential property disposals
There were no changes to the reporting and payment on account obligations for chargeable gains on UK residential property. The deadline to report and pay CGT remains at 60 days after the completion date.
Chargeable gains: separated spouses and civil partnerships
The current legislation applying to the transfer of assets between an individual and their spouse or civil partner provides that such transfers made in any tax year in which they are living together are on a no gain/no loss basis. Where spouses or civil partners separate, no gain/no loss treatment is currently only available in relation to disposals made in the remainder of the tax year in which they cease to live together. After that, transfers are treated as normal disposals for CGT purposes.
A number of changes are proposed to the rules that apply to transfers of assets between spouses and civil partners who are in the process of separating and no longer living together. These include the following:
The changes are expected to apply in relation to a disposal made on or after 6 April 2023.
Crypto assets: changes to the Self-Assessment tax return
It was announced that disposals of crypto-assets are to be separately identified on the capital gains tax pages of Self-Assessment tax returns from 2024/25.
Crypto-assets are as chargeable to CGT as any other investment asset, but concern exists as to how widely known are the compliance obligations. By separately identifying the reporting of crypto-asset disposals, this should raise awareness of the need to report disposals of such assets.
Payments to farmers under the lump sum exit scheme
As part of the transition to a new agriculture policy in England, the government announced in November 2020 that it planned to:
Payments received under the Basic Payment Scheme are generally taxable as receipts of a trade. Legislation will be introduced to ensure that payments received under the Lump Sum Exit Scheme which relate to an eligible claim are neither receipts of a trade nor miscellaneous income. This will allow the payments to be treated as the proceeds from the disposal of a chargeable asset, as is currently the case when Basic Payment Scheme entitlements are disposed of.
Other CGT changes
A number of other technical changes to CGT legislation have been announced from April 2023:
- Changes to ensure that Roll-Over Relief and Private Residence Relief are available for LLPs and Scottish partnerships when an exchange of interest in land or private residences held by the LLP or partnership occurs.
- Changes to prevent UK resident non-domiciled individuals who exchange securities in a UK close company for securities in a similar non-UK company from accessing the remittance basis of taxation on gains realised on the disposal of those non-UK securities.
- Unconditional contracts can present issues in relation to the reporting of the disposal for CGT purposes. The government have announced that the time limits where the date of transfer of the asset occurs more than six months after the end of the tax year in which the unconditional contract is entered into, or one year after the end of the accounting period of a company, will operate by reference to the tax year, or accounting period for companies, when the asset is transferred, rather than the tax year, or accounting period, of the contract. These changes will take effect from 6 April 2023, or 1 April 2023 for companies.
You can find the first in our Budget 2023 series here: Budget Summary.
As always, the contents of this post are meant as guidance only and if you have any concerns or wish to discuss any of the issues arising, please get in touch.