Capital Gains Tax allowance reduces to £3,000 from April 2024

Capital Gains Tax allowance reduces to £3,000 from April 2024

The capital gains tax (CGT) allowance is going to be halved from £6,000 to £3,000 in April 2024.

The reduced allowance will come into effect from 6 April 2024 and due to the freezing of tax thresholds more people will pay CGT.

Figures released indicate that CGT will raise around £17.8bn in 2023-24, according to estimates by the Office for Budget Responsibility.

CGT is a tax charged if you sell, give away, exchange or otherwise dispose of an asset and make a profit. It is not the amount of money received for the asset but the gain made that is taxed.

‘CGT is charged at the rate of either 10% or 18% for basic rate taxpayers. For higher or additional rate taxpayers, the rate is either 20% or 28%. If you are normally a basic rate taxpayer but when you add the gain to your taxable income you are pushed into the higher rate threshold, then you will pay CGT at both rates.

Generally to calculate the gain, you compare the sale proceeds (or value of the asset at the time it was disposed of) with the original cost of the asset (or value when it was acquired).

The reduction of the CGT allowance means inflation has pushed ever-larger slices of the gain into the realms of tax, and because income tax thresholds have been frozen, more people are likely to pay a higher rate of CGT into the bargain.

The last year for which figures have been released are for 2021-22, when a record £16.7bn was paid in capital gains tax. This is more than twice as much as the record inheritance tax paid in 2022-23, of just over £7bn, which far more people are concerned about.

With the cuts in the CGT thresholds in 2023-24 and 2024-25 this will likely mean we could pay even higher levels of this tax in the coming years.