Capitalise on the Higher Annual Exempt Amount Before It Drops in 2024

The imminent reduction in the annual exempt amount for capital gains tax (CGT) makes strategic asset disposal a critical consideration for individuals seeking to optimize their tax position. For the 2023/24 tax year, the exempt amount stands at £6,000, a significant decrease from £12,300 the previous year, and it’s slated to reduce further to £3,000 in 2024/25. This exemption, which acts as a personal allowance for CGT, cannot be carried forward; if unused, it’s forfeited.

Timing Disposals for Tax Efficiency

Case Study 1: Maximizing Gains with Early Disposal

Jacob, a higher-rate taxpayer, contemplates selling a property with a £20,000 gain. Selling before 6 April 2024 utilizes the £6,000 exemption, resulting in £3,920 CGT on the remaining £14,000. Delaying the sale would mean a higher CGT due to the reduced exemption, highlighting the tax-saving benefit of timely disposals.

Case Study 2: Strategic Loss Utilization

Jane faces a scenario where selling a painting after incurring a significant loss on a flat sale might waste her annual exemption. Delaying the sale of the painting to the next tax year allows her to fully utilize her loss against future gains while preserving the next year’s exemption.

Case Study 3: Planning Around Existing Gains

John, having already accrued £8,000 in chargeable gains, considers the sale of another property. Waiting until the next tax year to sell allows him to apply the new annual exemption, reducing his overall tax liability.

The Advantage for Couples

Spouses and civil partners can leverage their individual exemptions and tax rates by strategically transferring assets prior to sale. This can significantly reduce the family’s overall CGT liability.

Case Study 4: Utilizing Spousal Exemptions

Julian plans to sell a painting for a gain that would be fully covered by his wife Jackie’s unused exemption. Transferring the painting to Jackie before the sale allows the couple to avoid CGT altogether.

Key Takeaways

  • Act Now: With the annual exempt amount set to decrease, disposing of assets before 6 April 2024 can lead to substantial tax savings.
  • Consider Losses and Gains: Utilize losses to offset future gains and plan disposals around existing gains to maximize the use of annual exemptions.
  • Spousal Strategy: Couples should consider asset transfers to use each other’s exemptions fully, especially when one partner has unused allowance.

The changing CGT landscape underscores the importance of proactive financial planning. By strategically timing asset disposals, individuals can significantly mitigate their tax liabilities and maximize their financial outcomes.

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