The Chancellor announced in the last Budget that the annual exemption for capital gains tax is being reduced by 50% in April 2023, and then a further 50% in April 2024 to eventually settle at £3000pa.
The current exemption reduces the necessity to compute capital gains tax liabilities for small gains on property and share disposals, and so the reduction is going to increase compliance work.
Investment providers regularly manage investment funds to generate annual gains equal to the annual exemption. For a married couple or civil partners, this has always been a well-used technique to generate nearly £25000 of gains tax free.
With the property boom over the last two to three decades, many people are sitting on large capital gains from their investment properties. The tax is often paid at 28%, depending on circumstances, but for a couple, this potentially increases the tax on the sale by quite a lot.
The current combined exemption of £24600 will reduce to £6000 by April 2024, leaving £18600 exposed to CGT at 28% meaning an additional tax bill of £5208.
Anyone planning to sell their rental property or has an investment portfolio needs to be aware of the change of rules to attempt to maximise the usage of the current exemption before disposals become more expensive.