Significant Changes to Capital Gains Tax – Will you be affected?
Capital Gains Tax (CGT) is payable when you dispose of certain assets and you have made a gain on that asset. For example, if you inherit a property that is not your main residence, it is likely that you will be liable to pay Capital Gains Tax. The current position is that you are entitled to a yearly tax-free allowance for Capital Gains Tax at £12,300 (or £6,150 for trusts). The current tax rates range from 10%-28% dependant on whether you pay basic or higher rate Income Tax and whether the asset comprises residential property or not.
At the 2022 Autumn Statement, Chancellor Jeremy Hunt announced major changes to Capital Gains Tax to commence from April 2023. Whilst the changes will mean that landlords will end up paying more tax, the changes could significantly help divorcing couples.
Will the changes to Capital Gains Tax benefit me?
From April 2023, if you are separated from your spouse and you own a second property, you will be able transfer that property to your spouse as part of your financial settlement within three years of separation without having to pay CGT. Currently, the time frame is one year. This change could save couples thousands of pounds at a time when the matrimonial ‘pot’ for division may already be stretched.
Will the changes to Capital Gains Tax negatively impact me?
From April 2023, the annual tax-free Capital Gains Tax allowance will drop significantly. The current exemption of £12,300 will drop to £6,000 in April 2023 and from 2024, this will drop to £3,000. There are currently no proposals to adjust the tax rates. As a consequence, opportunities to mitigate tax liability will significantly diminish. Landlords are therefore left to consider whether or not to sell all of their properties before the exemptions drop to £3,000 by 2024. There are a number of factors that landlords will have to consider when thinking about disposing of their assets, including the current property market and the possibility of having to re-mortgage at higher rates in the future.
If you are concerned about the changes to Capital Gains Tax, you should contact a financial advisor.
