Capital Gains Tax: Annual Exempt Amount
Published 21 November 2022
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This publication is available at https://www.gov.uk/government/publications/reducing-the-annual-exempt-amount-for-capital-gains-tax/capital-gains-tax-annual-exempt-amount
Who is likely to be affected
Individuals, trustees of settlements (trustees) and personal representatives who realise gains chargeable to Capital Gains Tax (CGT).
General description of the measure
This measure changes the CGT annual exempt amount (AEA).
- For the tax year 2023 to 2024 the AEA will be £6,000 for individuals and personal representatives, and £3,000 for most trustees.
- For the tax year 2024 to 2025 and subsequent tax years the AEA will be permanently fixed at £3,000 for individuals and personal representatives, and £1,500 for most trustees.
The measure also fixes the CGT proceeds reporting limit at £50,000.
Policy objective
This policy supports the government’s objective of putting the public finances on a sustainable path in a way that is fair, with everyone contributing a little and those on the highest incomes taking on a larger burden.
Background to the measure
This measure was announced at Autumn Statement 2022.
Detailed proposal
Operative date
This measure will have effect from 6 April 2023.
Current law
The rules for the AEA are found at sections 1K and 1L of, and Schedule 1C to, the Taxation of Chargeable Gains Act 1992. Section 1K provides that the AEA is £12,300. Schedule 1C provides that the AEA available to most trustees is one half that due to individuals, effectively £6,150. It also provides for different amounts in relation to disabled person trusts, groups of trusts and trusts arranged into sub-funds. Section 1L provides that the AEA is increased annually in line with increases in the consumer price index (CPI).
Finance Act 2021, section 40 froze the AEA at £12,300 up to and including tax year 2025 to 2026.
The CGT reporting proceeds limit is found at section 8C of the Taxes Management Act 1970. Amongst other things it requires persons who are within self-assessment to only complete the CGT pages where the total amount or value of the consideration for all ‘chargeable disposals’ of assets made by the person in the year exceeds four times the AEA.
Proposed revisions
Legislation will be introduced in the Autumn Finance Bill 2022 amending section 1K to reduce the AEA to £6,000 for tax year 2023 to 2024, with a further reduction to £3,000 for tax year 2024 to 2025 and subsequent tax years. The AEA available to most trustees will remain at one half that due to individuals.
That legislation will also abolish the annual uprating of the AEA with CPI and fix the CGT reporting proceed limit at £50,000.
Summary of impacts
Exchequer impact (£m)
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| 0 | +25 | +275 | +425 | +435 | +440 |
These figures are set out in table 5.1 of Autumn Statement 2022 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2022.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
Individuals with gains in excess of the current AEA will pay more CGT. The maximum additional liability an individual will pay depends on the applicable rate: the highest CGT rate of 28% would mean £2,604 in additional tax, while at the lowest CGT rate of 10% the maximum additional tax would be £930. Trusts are liable to half of this amount.
By reducing the AEA, it is estimated that for the year 2023 to 2024 around 500,000 individuals and trusts per year could be affected, increasing on a cumulative basis to 570,000 in 2024 to 2025. Of this group, by 2024 to 2025 it is estimated that 260,000 individuals and trusts will be brought into the scope of CGT for the first-time.
Capital gains on assets held within a tax efficient wrapper, such as an ISA, will be unaffected. These products, along with private residence relief on main homes, keep most people out of the CGT system.
Trusts are more likely to have professional representation who will have already engaged with the tax system, there are c. 150,000 tax-paying trusts at present (based on Trust Registration Service registrations). Of those around 20,000 pay CGT each year. Although the cut to the AEA for trusts will be to a relatively low level, there is no reason to expect a significant impact on them.
This measure is not expected to have any significant impact on family formation, stability or breakdown.
Customer experience is expected to stay the same for existing taxpayers. The customer experience for new taxpayers could be affected because they may have to register for SA for the first time. To support them, online guidance and a dedicated CGT helpline is available. 95% of all CGT payers now file on-line.
Fixing the CGT reporting proceeds limit at £50,000 maintains the current level of reporting without significantly increasing the burden on customers.
Equalities impacts
It is not anticipated that this measure will disproportionally impact on groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have no impact on companies or civil society organisations who are not eligible for the AEA. It only affects individuals and trustees who pay CGT in that capacity and personal representatives who pay CGT in that capacity on behalf of an estate.
Operational impact (£m) (HMRC or other)
A cost in the region of £100,000 will be incurred in delivering the relevant IT changes to support safe implementation of this measure. HMRC also expects to receive additional contact from customers who require support as a result of this change.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be monitored through information collected from tax returns.
Further advice
If you have any questions about this change, please contact the Capital Gains Tax policy team on email: [email protected]
Declaration
Victoria Atkins MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.