Realise those capital losses
If you are planning to sell any property or your business in the near future, be aware that the annual exemption for capital gains tax will be cut from £12,300 to £6,000 on 6 April 2023. That exemption will reduce again on 6 April 2024 to £3,000. So long-term planning is needed where gains are expected to be made. Where you have made capital losses in the past, those can be very useful. As the loss from an earlier year is set off against gains before deduction of the annual exemption.
The CGT annual exemption is being reduced from £12,300 to £6,000 on 6 April 2023, and further to £3,000 on 6 April 2024. This makes it crucial to plan effectively to minimize CGT liabilities. Where past capital losses have been incurred, these can offset gains before the annual exemption is applied. Capital losses from previous years can be particularly useful, as they can be carried forward to future years if claimed on the tax return.
For a capital loss to be eligible to be carried forward. It must be claimed within four years of the end of the tax year in which it arose. For example, losses that arose in the 2018/19 tax year must be claimed by 5 April 2023.
Investors may have potential capital losses from holding assets like cryptocurrencies, which experienced a market crash in November 2022, or other assets that have depreciated significantly in value. If these assets, such as shares, still exist, a ‘negligible value’ claim can be made to create a capital loss, even if the asset hasn’t been sold. This allows for the recognition of a capital loss for tax purposes.
Realizing capital losses before the reduction in the CGT exemption can be a strategic move. By doing so, taxpayers can maximize the offset against gains, thereby reducing their CGT liabilities. This planning becomes even more critical as the CGT exemption decreases. Reducing the amount of gain that can be realized tax-free.
Professional advice can assist in claiming capital losses and making negligible value claims. This ensures that all potential tax benefits are utilized, and proper compliance with tax regulations is maintained. Effective tax planning, particularly with the upcoming changes, can result in significant tax savings.
