What the Autumn Statement means for Capital Gains Tax

After September’s disastrous mini-budget, the UK had been waiting in apprehension for the Autumn Statement 2022, which was finally published on 17th November.

The Chancellor of the Exchequer, Jeremy Hunt, technically stuck to the government’s promise not to increase tax rates – but frozen tax band thresholds and reduced allowances still mean that more people will be paying more tax from April 2023.

Among some of the harsher measures announced in the Autumn Statement is the slashing of Capital Gains Tax exemptions over the next two years. Here’s what you need to know about how Capital Gains Tax is changing, who will be affected, and what you can do about it.

How is Capital Gains Tax changing?

The annual exempt amount (AEA) for Capital Gains Tax (CGT) is due to be halved in April 2023, then halved again in April 2024. Along with similar reductions to the Dividend Allowance, the government estimates that this could raise more than £1.2 billion a year from April 2025.

This action follows a 2020 review by the Office of Tax Simplification, which suggested that reducing the AEA to £6,000 would lead to 235,000 people needing to pay CGT who hadn’t before, which could raise £480 million in the first year.

The new allowances for the next two tax years will be as follows:

The annual allowance cannot be carried forward if you do not use it in a given year. While the tax-free amount will shrink year on year, the tax rates for CGT
will not be changing. They will remain at 10% for basic rate taxpayers and 20% for higher/additional rate taxpayers (or 18% and 28%
respectively for gains on residential property).

Who will be affected by the new CGT allowance?

Reducing the annual CGT allowance so drastically will mean that hundreds of thousands of people will be liable for this tax whose gains would previously have been too low to require reporting or payment. The much lower thresholds are likely to affect:

• Employees in tax-advantaged schemes like Save As You Earn (SAYE)
• Investors buying shares with the intent to sell later
• Individuals gifting assets to partners or children
• Individuals inheriting property from a deceased person
• Couples dividing assets following a divorce
• Property owners selling second homes
• Landlords selling buy-to-let properties

The government estimates that 500,000
individuals and trusts could be affected by the new CGT liabilities next year (April 2023–April 2024). Those on the lowest 10% rate can expect to pay an additional £930, while those on the highest 28% rate would pay a maximum of £2,604 extra.

Trustees will also be hit by CGT allowance reductions, as the AEA for trustees will drop from £6,150
to £3,000 in April 2023, then to £1,500 in April 2024.

CGT planning for 2023 and beyond

With more people becoming liable for Capital Gains Tax
from next spring, they will now also be obligated to report gains or losses to HMRC
so they can pay the applicable tax. Many of these people are likely to be unfamiliar with self-assessment tax returns, or the deadlines for reporting chargeable gains and penalties for failing to do so.

For more information on how the CGT system works, you can find the government’s guide to reporting and paying CGT online. Alternatively, if you would like professional tax advice on how to reduce CGT liability – such as using ISAs or transferring assets between spouses – you can get in touch with our accountants in Barnsley.

Our GBAC tax consultants can help you to utilise the tax reliefs that apply to your circumstances and assist with CGT planning for the future.