Capital gains tax rules are changing - now’s the time to revisit your will or LPA
It’s a new year which for many is a cause for celebration - so it’s no wonder the topics of death and taxes are taking a back seat. But, it’s more important than ever that we’re having those conversations, because the new year could be the perfect time to get planning too.
Changes on the way in the world of taxes
As it currently stands, you can make up to £12,300 of profit - or “Capital Gain” before it becomes taxed. This means you can purchase an asset like a vintage car, jewellery, artwork and even shares and some loans can increase in value up to this amount and it will be tax free.
From April 2023, this allowance will reduce to £6,000 and then to £3,000 in April 2024. The amount you will be taxed depends if you are a basic or higher rate tax payer. Plus, your capital gains are added to your income - so your profits might push you from basic rate into higher rate.
There are some exemptions from Capital Gains Tax (CGT) - these mainly include your own private car, your main home and your pension. Investments held in an ISA and lottery winnings are also considered to fall outside of CGT thresholds.
Tis the season
CGT is due at the end of the January after the end of the tax year in which the gain occurred - so a gain made in May 2022 is not taxable until January 2024. You will need to declare any profit on your self assessment or you must file a return with HMRC.
Most people think CGT is only payable when you sell an item - i.e. because you want to fund retirement. However, it is also payable if you gift something or if it is traded for something worth the same value. For example, if you purchase a classic car for £10,000, it increases in value to £20,000 and then it is stolen, but the insurance replaces it for a car that’s exactly the same, CGT would still be payable on the £10,000 profit.
Why is this relevant to a will or LPA?
You will need to plan ahead. If you have a will then you will need to think about any assets contained within and how this may affect any beneficiaries, as well as any Inheritance Tax implications.
If you have a Lasting Power of Attorney (LPA) then planning for Inheritance tax or Capital Gains Tax can become extremely complicated if you lose mental capacity, plus, an attorney’s powers are limited as tax planning may need to involve the Court of Protection.
We can help
If you would like any advice relating to your will or LPA, contact the Private Client team at Downs Solicitors to see how we can help.