With Capital Gains Tax changes in the pipeline, it’s all about the timing of disposals
Chris Campbell outlines some practical issues to consider following the Capital Gains Tax changes announced in the 2022 Autumn Statement
What changes were announced to Capital Gains Tax?
In his 2022 Autumn Statement, Chancellor Jeremy Hunt announced changes to the Capital Gains Tax Annual Exempt Amount (AEA). Although there are no changes to the Capital Gains Tax rates, the AEA will be reduced from the current £12,300 to £6,000 from 6 April 2023, and £3,000 from 6 April 2024. The government believes that this will raise over £1.2 billion per year from April 2025.
For business owners selling shares, this change will increase the Capital Gains Tax payable on a share disposal by up to £630 for disposals in the 2023/24 tax year and £930 from April 2024, where the disposal is covered by Business Asset Disposal Relief. Where Business Asset Disposal Relief is not available, the additional tax could increase to £1,260 in the 2023/24 tax year and £1,860 from April 2024 for a higher rate taxpayer.
In the case of the sale of residential property, that same higher rate taxpayer could pay an additional £1,764 in the 2023/24 tax year and £2,604 from April 2024.
When advising clients of the Capital Gains Tax payable on an upcoming disposal, tax practitioners will need to remind their clients of the importance of the rules on the timing of a disposal as this will impact the tax year in which a gain is taxed and the relevant AEA available.
What rules do taxpayers need to be aware of?
Section 28 TCGA 1992 outlines the rules for the timing of disposal. This is normally when an unconditional contract has been completed, rather than the completion date (if different).
Where the contract is conditional on an event taking place, then the disposal is treated as having taken place once the condition has been satisfied.
Therefore, if a taxpayer has entered into a contract which concludes in March 2023 but is completed in late April 2023, this will be treated as a disposal in the 2022/23 tax year and the current £12,300 AEA applicable, even though the disposal proceeds are not received until the 2023/24 tax year. If there was a condition that was not satisfied until completion, then it would be classed as a 2023/24 disposal and only £6,000 AEA available.
In the case of a property disposal in Scotland, the disposal would normally be treated on the date that the legal missives are concluded. It is important to remember that any Capital Gains Tax on the sale of UK residential property must be reported to HMRC within 60 days of the completion date (this was 30 days in respect of the disposal of property where the completion date was between 6 April 2020 and 26 October 2021).
Where the disposal has been in the form of a gift, then the date of disposal will be based on when beneficial ownership passes.
Although it is always important to ensure that a disposal is reported in the correct tax year, the 2022 Autumn Statement changes could have an impact on the amount of tax payable, as well as the tax payment date. Taxpayers may wish to be careful about the timing of planned disposals and liaise with their legal adviser so that they can be mindful of the impact of the tax changes when attending to their legal paperwork.
Let us know your views
We encourage Members to let us know where tax changes cause practical issues for them and/or their clients. We welcome Members’ input to inform our work on consultations or other tax-related matters – email firstname.lastname@example.org to share your insights and feedback. ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by Members.