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CGT Relief Restrictions for UK Residential Property Owners

9th October, 2023

Capital Gains Tax (CGT) is a tax levied when certain assets are sold or disposed of, encompassing various items such as land, property (including second homes and investment properties), art, antiques, or shares held outside of an ISA.

The calculation of CGT hinges on the disparity between the acquisition value of an asset and its value at the time of disposal, which may include instances of gifting. Certain allowable expenses can be deducted from the calculation to determine the tax liability.

Now, let’s delve into the CGT allowance, which is an essential aspect of these changes:

  • In the 2022/23 tax year, the Annual Exemption Allowance (AEA) for Capital Gains Tax stands at £12,300.
  • Starting in April 2023, this allowance is set to decrease significantly, falling to £6,000.
  • Further reducing from April 2024, the AEA will be capped at £3,000.

The AEA represents the tax-free amount an individual can receive annually before they are obligated to pay CGT.

The impact of these alterations is substantial, as the government projects that approximately 500,000 individuals and trusts will be affected by these changes in the tax year 2023 to 2024. This figure is expected to rise to 570,000 in the following tax year, reflecting the widespread ramifications of these modifications.

Fast forward to the 2024/25 tax year, and the government foresees an additional 260,000 individuals and trusts being liable for CGT who otherwise would not have been, if not for these changes.

It’s important to note that ISAs will remain unaffected by these CGT adjustments, and Private Residence Relief (PRR) for main residences will continue as usual.

Even in cases where CGT is not payable, such as when a gain of at least £50,000 is made, there remains a requirement to report this to HMRC, ensuring transparency and compliance with tax regulations.