Capital gains tax in Scotland: bands, rates and allowances

10 Nov 2023 | Personal tax

Capital Gains Tax in Scotland is a key component of the tax system, affecting both individuals and businesses across the country.

Grasping the various mechanics of CGT, including its bands, rates and allowances, is fundamental for anyone who buys, sells or trades assets of various kinds, regardless of how often they do it.

This blog explores CGT in detail so you know exactly when it applies to you and what you need to do.

Capital gains tax in Scotland: allowances and rates for individuals

CGT is charged on the profit made from selling or disposing of an asset that has increased in value.

This tax applies to a variety of assets, including but not limited to non-primary residence properties, shares, business assets and personal possessions, excluding cars.

The 2023/24 tax year allowance is £6,000, significantly lower than the previous figure of £12,300. It’s further scheduled to decrease to £3,000 in April 2024.

It’s crucial to remember that the gain or increase in the asset’s value is subject to tax, not the total sale amount.

CGT rates based on income tax band

While Scottish taxpayers pay income tax using separate bands to England and Wales, it’s important to note that capital gains tax in Scotland is charged according to the UK-wide bands.

The rate at which CGT is paid is dependent on the taxpayer’s income tax band:

  • Basic-rate taxpayers are generally charged 10% CGT on gains, increasing to 18% for gains from residential property not covered by Private Residence Relief.
  • For gains from residential property not covered by Private Residence Relief, higher or additional-rate taxpayers face a CGT rate of 20% or 28%.

Special considerations for trusts

Trusts are subject to different CGT regulations.

They typically have a lower annual exempt amount, which is usually half of the individual’s allowance. They are also taxed at higher CGT rates, similar to those for higher-income individuals.

Interactions between trusts and CGT are quite complex, so you should contact an accountant before disposing of any.

CGT reliefs and deductions

There are several CGT reliefs and deductions to be aware of, including:

Private residence relief

One of the most important reliefs is Private Residence Relief, which often exempts gains from CGT from selling one’s primary home.

It’s important to note that ‘main residence’ refers to the home you live in most of the time, not an investment property or a holiday home. If you’ve only lived in the property for a portion of the ownership period, you might still qualify for partial relief.

Business asset disposal relief

Previously known as Entrepreneurs’ Relief, this relief reduces the CGT rate to 10% on certain business assets, up to a lifetime limit of £1 million.

It applies to sales of part or all of a business, shares in a personal company, or assets used in the business, provided you’ve owned them for at least two years.

Handling capital losses

Capital losses from selling assets for less than their purchase price can offset gains in the same tax year or be carried forward to reduce future gains.

Reporting these losses to HMRC is vital to make them count against future gains.

The role of accounting experts

Engaging with professional accountants and tax advisers can transform your approach to CGT. They offer invaluable assistance in:

  • Clarifying CGT liabilities: Breaking down what you owe and why clearly.
  • Strategic planning: Utilising allowances and reliefs to your advantage, potentially lowering your tax burden.
  • Ensuring compliance: Keeping you in line with both UK-wide and Scotland-specific tax regulations, avoiding pitfalls and penalties.

Final thoughts

You need to understand CGT to manage your finances and ensure compliance with HMRC.

Remember that the same rules apply to Scotland as in England and Wales, including the income tax bands, which must be followed rather than using Scottish equivalents.

Proper knowledge of the available reliefs and planning can result in substantial tax savings and ensure full compliance.

The expertise of professionals like Thomas Barrie & Co is invaluable. We provide the assistance you need to manage CGT accurately while effectively leveraging reliefs and allowances.

Get in touch with us to find out how we can help.