In the Autumn Statement from the Chancellor of the Exchequer, Jeremy Hunt, today (17th November 2022), it was announced that the capital gains tax (CGT) allowance was being reduced with effect from next year.

The CGT allowance currently stands at £12,300 as it has for the previous 2 years. However, with effect from April 2023 it will be reduced by over half to £6,000 and then for 2024/25 it will be reduced even further to £3,000.

According to HMRC:

Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value.

It’s the gain you make that’s taxed, not the amount of money you receive. For example, if you bought a painting for £5,000 and sold it later for £25,000, you’ve made a gain of £20,000 (£25,000 minus £5,000). Essentially you would then take off your CGT allowance and you would pay tax on the remainder.

If you’re a higher or additional rate taxpayer you’ll pay:

28% on your gains from residential property
20% on your gains from other chargeable assets

If you pay basic rate Income Tax
If you’re a basic rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets.

• Work out how much taxable income you have – this is your income minus your Personal Allowance and any other Income Tax reliefs you’re entitled to.
• Work out your total taxable gains.
• Deduct your tax-free allowance from your total taxable gains.
• Add this amount to your taxable income.
• If this amount is within the basic Income Tax band you’ll pay 10% on your gains (or 18% on residential property). You’ll pay 20% (or 28% on residential property) on any amount above the basic tax rate.

There are certain things that are exempt from capital gains tax – you will need to check the government website for exemptions. This reduction in the CGT allowance will mean that there will be a lot more tax payable if you realise gains on your assets in the next few years.