Strategic Planning for Capital Gains Tax as the Tax Year Ends
As we near the end of the 2023/24 tax year, strategic planning for capital gains tax (CGT) becomes crucial. With the annual exempt amount for capital gains set to reduce from £6,000 in 2023/24 to £3,000 in 2024/25, timing your disposals could significantly impact the tax you owe.
Maximising the Annual Exempt Amount
Each individual has their own annual exempt amount for CGT, which is applied to net gains (chargeable gains minus allowable losses) within the tax year. It’s important to remember that this amount cannot be carried forward; if it’s not used, it’s lost.
Couples, both spouses and civil partners, can optimise their tax position by transferring assets between them. If one partner has exhausted their annual exempt amount, transferring an asset to the other partner before disposal can utilise the latter’s unused exempt amount.
Key Timing Considerations
To decide whether a disposal should happen in 2023/24 or be deferred to 2024/25, consider the following:
- Have you used your annual exempt amount for 2023/24?
- What tax bracket are you in for 2023/24?
- Have you realized any losses this tax year?
- Has your spouse or civil partner used their annual exempt amount for 2023/24?
- At what rate does your spouse or civil partner pay tax?
- Do you anticipate gains or losses in 2024/25?
- What tax bracket do you expect to be in for 2024/25?
- What tax bracket do you expect your spouse or civil partner to be in for 2024/25?
If no disposals have been made in 2023/24, realizing a gain before 6 April 2024 to use the higher exempt amount is advisable. Transferring assets between spouses or civil partners can further increase tax savings.
Factoring in Losses
When losses come into play, they are first set against chargeable gains of the same year, before applying the annual exempt amount. Unrelieved losses from earlier years are applied after the exempt amount. If you have unrelieved losses exceeding your chargeable gain for 2023/24, delaying the disposal to 2024/25 might be more beneficial, allowing you to set the next year’s exempt amount against the gain before using carried-forward losses.
Considering Tax Rates and Future Plans
If your 2023/24 exempt amount is already used, consider the tax rate at which the gain will be taxed and your expected tax bracket in 2024/25. For example, if you’re a basic rate taxpayer in 2023/24 but anticipate moving to a higher bracket in 2024/25, it may be more tax-efficient to dispose of assets before 6 April 2024.
Proactive planning is key. Assess your circumstances, do the math, and time your disposals to optimise your tax position. As always, seeking professional advice can help tailor these strategies to your specific situation.
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