Rate changes in effect from 6 April 2016 mean that capital gains have become attractive again – unless you have the wrong type of gain, that is.
As of the start of this tax year, Capital Gains Tax (CGT) rates have fallen from 18% to 10% for gains taxed at the basic rate, and from 28% to 20% for higher rate gains. The tax rate will also reduce to 20% for chargeable gains of trustees and personal representatives.
The new lower rates apply to most chargeable gains including shares and other financial assets but do not include gains which arise on residential properties. With this in mind, the availability of the CGT exemption for the main residence has become increasingly important.
How is the amount of CGT you pay determined?
The amount of the chargeable gain is the amount after the deduction of reliefs, losses and the annual exempt amount (which is £11,100 for 2016/17).
The rate of CGT payable on gains will depend on the individual’s taxable income and gains for the tax year.
In cases where part of an individual’s income tax basic rate band is unused, and they have gains from residential properties, they can use the unused basic rate band in the way that most effectively reduces their CGT charge.
The individual can choose which chargeable gains are taxed at the lower CGT rate, up to the unused amount. For these purposes, the unused amount is reduced by the amount of any gains that are taxed at the 10% rate under Entrepreneurs’ Relief or Investors’ Relief’.
Investors’ Relief was introduced for unlisted trading company shares issued to individuals on or after 17 March 2016 where the individual has no connection with the company. This new relief applies a 10% rate of tax to gains accruing the subsequent disposal of these shares as long as they have been held for three years from 6 April 2016.
If you would like to discuss capital gains tax with an advisor, please get in touch.