Capital Gains Tax Allowance in 2024

Capital Gains Tax Allowance

Capital Gains Tax (CGT) is a tax on the profit when you sell an asset that has increased in value. The quantity of money you get is not taxed; rather, it is the gain you create. Depending on your personal income tax band, the kind of asset, and the length of time you have owned it, there are several regulations and rates that apply in the UK. This article will use data from official UK government sources to present a concise and understandable explanation of the Capital Gains Tax allowance for the year 2024.

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What is Capital Gains Tax?

When you sell some assets, such real estate, stocks, or other investments, you may be required to pay capital gains tax on your profit. Only the gain you make is subject to taxation; the amount you sell the item for is not. For instance, you would have to pay tax on the £15,000 profit if you purchased a picture for £5,000 and sold it for £20,000.

Annual Exempt Amount

Every person in the UK is entitled to a capital gains allowance that is tax-free. The Annual Exempt Amount (AEA) is the term for this. The AEA is £6,000 for the tax year 2024–2025. This implies that you can sell assets for up to £6,000 profit and avoid paying any capital gains tax (CGT). You will be required to pay tax on any gains that exceed this sum.

What are the New Capital Gains Rules for 2024?

Starting June 25, 2024, the Canadian federal budget introduced several changes to the capital gains tax rules:


  1. Inclusion Rate Increase: The inclusion rate for capital gains will increase from 50% to 66.67% for capital gains exceeding $250,000. This means that for every dollar of capital gain over this threshold, two-thirds will be included in your taxable income.
  2. Lifetime Capital Gains Exemption (LCGE): The LCGE limit is proposed to increase to $1.25 million of eligible capital gains. This adjustment applies to dispositions occurring from June 25, 2024, onward, benefiting individuals who sell qualifying small business corporation shares or farm and fishing properties.
  3. Employee Stock Options: Changes to the taxation of employee stock options will align with the new inclusion rate, ensuring that the tax benefits reflect the updated capital gains rules.
  4. Transition Period: Any capital gains and losses realized before June 25, 2024, will still be subject to the previous inclusion rate of 50%.

These changes aim to create a more equitable and predictable taxation system for capital gains, ensuring that higher gains contribute more significantly to tax revenues.

Is the Capital Gains Tax Allowance Changing?

Yes, the capital gains tax allowance is undergoing changes as part of the new rules:

  1. Higher Inclusion Rate: The shift from a 50% to a 66.67% inclusion rate effectively increases the portion of capital gains that are taxable. This change applies to gains exceeding $250,000, meaning a larger part of high-value gains will be subject to tax.
  2. Lifetime Capital Gains Exemption (LCGE): The increased LCGE limit to $1.25 million allows individuals to shelter more gains from tax. This adjustment benefits those selling qualifying small business shares or agricultural properties, providing a higher tax-free threshold.
  3. Application to Employee Stock Options: The new inclusion rate affects the tax treatment of gains from employee stock options, which will be taxed more heavily under the updated rules.

By understanding these changes, taxpayers can better plan their transactions and make informed decisions to manage their capital gains tax liabilities effectively.

CGT Rates for 2024

Your income tax bracket and the kind of asset you sold will determine the capital gains tax rate you must pay. The rates for the 2024–2025 tax year are as follows:

  • Taxpayers at the Basic Rate: You will pay 10% on gains over the AEA if you are a basic rate taxpayer, or 18% if the gain comes from residential property.


  • Taxpayers in Higher and Additional Rates: If your gains exceed the AEA, you will pay 20% in taxes, or 28% in the case of gains from residential property.

Calculating Your Gain

To calculate your profit, you must know how much you spent for the asset (the purchase price) and how much you sold it for. Subtract the buying price from the sale price to calculate your profit. You can also deduct some permissible expenses, such as those incurred when purchasing and selling the item. (e.g., estate agent fees, solicitor’s fees, and costs of improvements).

Example: If you bought a house for £200,000 and sold it for £250,000, your gain would be £50,000. If you incurred £5,000 in allowable expenses, your taxable gain would be £45,000.


How to Report and Pay CGT

If you have to pay Capital Gains Tax, you need to report your gains to HM Revenue and Customs (HMRC). You can do this by completing a Self Assessment tax return. Alternatively, you can use HMRC’s ‘real-time’ Capital Gains Tax service to report gains from property sales within 60 days of the sale.

Exemptions and Reliefs

There are certain exemptions and reliefs available that can reduce your Capital Gains Tax bill. Some of the main ones include:

  • Principal Private Residence Relief: If the asset you sold is your main home, you may not have to pay any CGT on the gain.
  • Entrepreneurs’ Relief: This can reduce the amount of CGT you pay if you are selling a business.
  • Gift Hold-Over Relief: If you give away a business asset, you may be able to defer the CGT until the recipient sells the asset.

Key Points to Remember

  1. Annual Exempt Amount: For 2024-2025, you can make £6,000 in capital gains before you have to pay any tax.

  2. Tax Rates: Basic rate taxpayers pay 10% (or 18% for residential property), while higher and additional rate taxpayers pay 20% (or 28% for residential property) on gains above the AEA.

  3. Calculating Gains: Subtract the purchase price and any allowable expenses from the sale price to find your taxable gain.

  4. Reporting Gains: Use the Self Assessment tax return or HMRC’s real-time service to report your gains.

  5. Exemptions and Reliefs: Various reliefs can help reduce your CGT liability, such as Principal Private Residence Relief and Entrepreneurs’ Relief.
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