When selling capital assets at a profit you should typically expect to trigger a liability to capital gains tax. Many taxpayers who are liable to capital gains tax will however be eligible for one or several capital gains tax allowances. For instance, an ‘Annual Exemption’ is available to virtually all taxpayers. For gains which fall within this annual exemption, the gain is tax-free.
As such, you will only have to pay capital gains tax where the profit on the disposal of the chargeable asset exceeds the annual exemption, after applying deductible losses and any other reliefs.
Which of my capital assets can I claim for?
The current Capital Gains Tax Annual Exemption (as at November 2017) permits the following gains to be taken tax-free within the same tax period:
- For individuals resident in the UK: £11,300
- For executors or personal representatives of a deceased person’s estate: £5,650
- For trustees for disabled people: £11,300
Above these levels, taxpayers are then charged the prevailing capital gains tax rate, which at November 2017 stand at:
- Basic rate taxpayer: 10%
- Higher rate taxpayer: 20%
- Surcharge on carried interest and residential property (that does not qualify for private residence relief): 8%
- Entrepreneurs relief rate (up to £10 million lifetime limit): 10%
- Trustees: 20%
Find out more about which capital gains tax rate applies.
Capital Gains Tax Annual Exemption: UK non domiciled individuals (“Non doms”)
Non doms who have claimed the remittance basis of taxation will, under basic principles, be subject to tax on foreign gains if these are remitted to the UK.
The remittance basis is used where non doms elect to be taxed on the foreign income and gains brought into, or enjoyed in, the UK, as opposed to all income and gains as they arise.
If you do use the remittance basis of taxation, then you should ensure that you seek advice on your capital gains position. There will be wider factors to consider, including the location of the asset(s), the type of assets, as well as value and where and how the funds from disposal will be transferred.
Of course, changes introduced in the Finance Act 2017 mean that the remittance basis of taxation is no longer ‘open ended’. If a non dom has been resident in the UK for 15 tax years out of the last 20 then they are ‘deemed domiciled’ in the UK and will be taxable on the capital gains as they arise.
These new rules also brought in an ability for certain non doms affected by the changes to be able to ‘rebase’ certain foreign assets they held. This will be a helpful facility for those becoming deemed domiciled under these rules.
Capital Gains Tax Annual Exemption: UK non residents
Historically, excluding certain anti-avoidance rules, UK CGT has not been levied on non-UK resident persons. This is regardless of whether the asset is located in the UK or otherwise.
However, as part of its general assault on UK residential property investors, the Government extended the fundamental jurisdiction of UK CGT to include non-residents holding UK residential property. This took effect for any parts of gain that have arisen since 6 April 2015. Where an asset was held before this date then one must slice and dice the gain into the part that occurred before this date (not taxable) and the part after this date (taxable). There is some freedom to determine how this split takes place as long as it is just and reasonable.
Please note that this change only applies to UK residential property. Other assets, including UK commercial property, is outside the scope.
Capital Gains Tax Annual Exemption: Executors and personal representatives
If you are acting as an executor or personal representative for a deceased person’s estate, you will be entitled to the Annual Exemption for the tax year in which the death occurred and the following 2 tax years.
After this time, there will be no further tax-free allowance against gains from the administration period.
Capital Gains Tax Annual Exemption: Trustees for disabled people
The full capital gains tax exemption is available to trustees acting on behalf of a disabled person.
Key tax planning considerations where Capital Gains Tax Annual Exemption exceeded
Significantly, the annual exemption is only available to you for the tax year to which it relates – which means you will lose the allowance if it remains unused in the relevant tax period.
There is no option to carry the annual exemption forward to any other tax year.
Through careful and experienced capital gains tax planning, there are ways you could be able to take full advantage of capital gains tax allowances to reduce your CGT liability.
The asset itself
If you are disposing of multiple assets, it is likely to be more tax-efficient to use your Annual Exempt Amount against the gains charged at the highest rates, thereby minimising the tax you owe. Common sense perhaps, but this approach requires foresight and planning as to which assets you will be disposing of, and when.
Timing of disposal
A key consideration will be the timing of asset disposal. If you have already utilised your annual exemption allowance, and any potentially exempt options are exhausted (e.g. spousal transfer, see below), you may wish to consider holding the transfer until the new tax year when your capital gains tax allowance starts again.
Likewise, it may also make sense to accelerate disposal of an asset standing at significant again – i.e. above the exemption threshold – ahead of a new tax year where capital gains tax rates are expected /scheduled to be raised, or where you plan to dispose of further, high value assets.
Location of asset
The location of the asset in question can also have a bearing on both liability and also options for shelter or relief. In instances where we are engaged well in advance of asset disposal, we can explore options to mitigate CGT liability by for example moving the asset overseas where there is sufficient time to set up structures. Importantly, operating in good time it also enables us to ensure the requirements of the relief are met.
Spouses and civil partners
It is permissible to transfer assets between spouses and civil partners without incurring a CGT charge, on a so-called ‘no gain, no loss’ basis. This form of tax planning makes use of both partners’ annual exempt amounts. Likewise, where both exempt amounts are still available, it may be beneficial to transfer an asset to joint names prior to disposal. Take advice on your particular circumstances.
Enterprise Tax can help with Capital Gains Tax Annual Exemption
Capital gains tax has the potential and potency to hit individual taxpayers hard. Careful planning and optimising use of reliefs and exemptions can help you to minimise tax liability while remaining HMRC compliant.
We advise UK residents, non doms, non-UK residents and expats on capital gains related issues, including the availability and application of individuals’ Capital Gains Tax Annual Exemption.
Our services include:
- Capital gains tax advice
- Capital gains tax planning
- Capital gains tax on shares
- Capital gains tax on property
- Non dom tax
- Expat tax
If you have a question relating to any aspect of capital gains tax, please contact one of our chartered tax advisers