Understanding Capital Gains Tax: What to Expect in the 2024 UK General Election

Introduction

With the 2024 UK general election drawing near, questions are circulating about potential tax changes under a new government. Capital Gains Tax (CGT) is often a topic of discussion. Here, we answer the most pressing questions about what CGT is, the current rates, exemptions, and how things might shift post-election.

What is Capital Gains Tax (CGT)?

Capital Gains Tax is a tax on the profit gained when you sell (or dispose of) an asset that has increased in value. It’s the gain you make that’s taxed, not the total amount of money you receive.

What are the current CGT rates and thresholds?

The CGT rate depends on your income and the type of asset. As of the current tax year:

• Basic-rate taxpayers pay 10% on gains from assets and 18% on property.
• Higher-rate taxpayers pay 20% on gains from assets and 24% on property.
• The annual exempt amount for individuals is £3,000, meaning you can earn gains up to this amount tax-free.

The annual exempt amount has been steadily reduced from a high os £12,300 in 2022/23 to £3,000 in this current tax year.

Can you provide a worked example of how CGT is calculated?

Sure! Let’s say you are a higher-rate taxpayer and sell a piece of art for a £20,000 profit. Assuming you have no other gains that year, the first £3,000 is tax-free. You would pay 20% tax on the remaining £17,000, which equals £3,400 in CGT.

What exemptions and reliefs are available for CGT?

Several exemptions can reduce your CGT:

• Tax efficient investments: Gains on investments held within an ISA, pension, VCT (and some other investments) are exempt from CGT.
• Private Residence Relief: No CGT is due when selling your main home if it’s been your residence throughout the period of ownership.
• Annual Exempt Amount: Each tax year, you can gain up to £3,000 without owing CGT.
• Gifts to spouse: You can transfer assets to your spouse without incurring a CGT charge. This could allow the assets to be realised at a lower rate. You could also benefit byusing both of your CGT annual exemptions.

How might a future government change CGT?

No party has confirmed changes to CGT. It’s possible that future governments could adjust rates or thresholds to meet economic or social goals. For instance, increasing the tax rate for high earners or reducing the exemption threshold could be considered to increase public revenues.

There has been much discussion about aligning CGT rates to those of income tax (20%, 40% and 45%) and although no party has confirmed they are planning to do this, none have rules it out.

If a Labour government is elected, will they raise taxes?

It is speculative, but historically, Labour has favoured using tax adjustments as a tool for addressing inequality. Any decision to raise CGT or other taxes would depend on their broader fiscal strategy and economic conditions at the time. Labour have not ruled out changes to the CGT regime, but have said there are no plans to change the tax rules above what is in their manifesto.

As we approach the 2024 general election, the potential for changes in taxation, including Capital Gains Tax, is a crucial issue for taxpayers to monitor. While we cannot predict the future, being informed and prepared is key to navigating potential changes effectively.

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