Limited companies and advisors were worried about the fact that the chancellor, Jeremy Hunt, will be using Capital Gains Tax (CGT) to increase the tax rates and revive the weak economy of the UK.
There were not quite detailed points by the chancellor in his speech on November 17th during the Autumn Statement 2022.
The Green Book states that starting in April 2023, CGT will be due on gains above £6,000 per year, and starting in April 2024, gains exceeding £3,000 per year. Both of those are much (significantly) lower criteria than the current level of £12,300.
There is no change in CGT rates.
The rate of CGT, which is 10% for basic rate taxpayers on any gains beyond the yearly exemption (or 18% on earnings from selling residential property that is not your home), was untouched during the Autumn Statement.
For higher-rate taxpayers or if the gains raise the total income, the rate is 20% (and 28% on profits from residential property that is not your primary residence).
You should also know that not all asset sales are subject to CGT.
What is not subject to capital gains tax?
There is, in fact, a long number of exceptions:
- Selling your main residence (Principal Private Residence Relief).
- Gifts given to civil partners and married couples.
- The buying and giving of non-business-related vehicles.
- Giving away personal items is permitted, but only up to £6,000 annually.
- Wasting resources with a 50-year or less useful lifetime.
- Coins made of gold, silver, and platinum.
- Presents given to charities.
- If you’ve won a lottery.
- British government gilts.
- Money received from life insurance coverage.
- Pensions, trust funds for children, and goods from National Savings & Investments.
- Gains on some tax-efficient investment.
What’s the relief?
The huge comfort regarding CGT is that Business Asset Disposition Relief, or "BADR," (previously known as Entrepreneurs' Relief) remained untouched.
Individuals are permitted to pay a 10% lower CGT rate on gains from the sale of company assets, with a £1 million lifetime cap.
What does it mean for contractors?
The reduction of the annual exemption amount is a significant turning point for the contractors in the Autumn Statement 2022. Though the Sunak Government says that raising CGT is not killing off contractors, at the same time, the government brings high corporation tax, IR35 reform, and lower tax-free dividend income.
Craig Beaumont, Chief of External Affairs at the representative body of the Federation of Small Businesses (FSB), commented,
“Due to the extra burden of capital gains tax, We will see more and more business owners looking for the exit [before the changes take effect], which is exactly the worst thing to do when we need employers driving growth. The government cannot talk about wanting to make the UK a home for enterprise and then make enterprise much more expensive.”
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