Current CGT Rates

Individuals with capital gains from investments or property sales , property owners and investors, and financial advisors and tax planners. Clarifying the current Capital Gains Tax (CGT) rates, how they apply to various assets, the difference in rates for residential property versus other assets, and the available exemptions and reliefs to reduce liability. Understanding CGT rates and planning for future sales of assets is crucial to avoid unexpected tax liabilities. This page helps individuals and businesses manage CGT efficiently and take advantage of available tax reliefs before making asset disposals.

Current CGT Rates and How They Apply

Capital Gains Tax (CGT) is normally charged at a simple flat rate of 20% and this applies to most chargeable gains made by individuals. If taxpayers only pay basic rate tax and make a small capital gain, they may only be subject to a reduced rate of 10%. Once the total of taxable income and gains exceed the higher rate threshold, the excess will be subject to 20% CGT. A higher rate of CGT applies to gains on the disposal of residential property (apart from a principal private residence). The rates are 18% for basic rate taxpayers (2023-24: 18%) and 24% (2023-24: 28%) for higher rate or additional rate taxpayers. Again, if the gain pushes a taxpayer into the higher rate, then CGT will be payable at both rates. The 18% basic rate and 28% higher or additional rate of CGT that applies to gains in respect of carried interest (the share of profits or gains that is paid to asset managers) remain unchanged in the current tax year. The usual due date for paying any CGT owed to HMRC is the 31 January following the end of the tax year in which the capital gain was made. However, since 27 October 2021 any CGT due on the sale of a residential property needs to be paid within 60 days. In practice, this change only applies to the sale of any residential property that does not qualify for Private Residence Relief (PRR). There is also an annual CGT exemption for individuals that is currently £3,000 (2023-24: £6,000). A husband and wife each have a separate exemption. Same-sex couples who acquire a legal status as civil partners are treated in the same way as married couples for CGT purposes.

Difference in CGT Rates for Residential Property vs Other Assets

Residential property disposals are taxed at a higher rate than other types of assets:

• Property sales: The sale of residential properties, including second homes or buy-to-let properties, is taxed at a higher CGT rate.
• Other assets: Stocks, shares, business assets, and other investments are taxed at the lower rate of CGT.

This difference in rates is important for property owners, as it can significantly affect the tax liabilities on the sale of residential property versus other investments.

CGT Exemptions and Reliefs

There are several exemptions and reliefs available to reduce CGT liabilities, including:

• The annual exempt amount: Individuals can earn a certain amount of capital gains tax-free each year.
• Private Residence Relief (PRR): If you sell your main residence, you may qualify for PRR, which exempts you from CGT on the gain.
• Letting Relief: If you qualify for PRR and have rented out part of your home, Letting Relief may reduce your CGT liability.

Taxpayers should be aware of these exemptions and reliefs to reduce their overall CGT exposure when selling assets.

Risks and Consequences of Incorrect CGT Reporting

If CGT is incorrectly calculated or reported, the following consequences may apply:

• Penalties: Incorrect CGT reporting can result in penalties for underpayment of tax.
• P11D or tax return issues: Errors in reporting can lead to issues with HMRC and require corrections on P11D forms or tax returns.
• Increased tax liabilities: Failing to apply exemptions or reliefs correctly could result in unnecessary CGT payments.

Employers and taxpayers must ensure that they are accurately calculating and reporting CGT to avoid these risks and ensure compliance with tax laws.

Real-World Application

Common real-world contexts where CGT planning is crucial include:

• Property sales: Property owners must plan ahead to understand how the sale of their home or buy-to-let properties will be taxed, especially if they don’t qualify for exemptions.
• Investment portfolios: Investors should be aware of how stocks, shares, and bonds are taxed and look for ways to reduce CGT exposure.
• Tax-efficient planning: Taking advantage of exemptions and reliefs to minimise CGT when disposing of assets like property or investments.

Planning for CGT is essential to managing your tax liabilities and ensuring you don’t pay more tax than necessary.