AEA and allocation if you have both Shares and Carried Interest income

elbutre

Hi
Quick question around how to allocate your AEA for CGT
If for instance in TY 2020-2021 you have realised gains (profit) when both selling shares and carried interest (or property) how do you allocate the AEA for CGT
example:

• Carried Interest or Property profit = £20k
• Share profit = £20K

AEA for CGT is £12300
How do you allocate the AEA, can you deduct it from the Carried Interest or Property profit only or do you have to allocate it proportionally (50% of £12300 to each? or can you mix and match as you please
As the first category is taxed at 18% or 28% and the second at 10% or 20% it would be nice if you could deduct it from the higher taxed category but life is not always kind.
I could not find the answer on the HMRC website (or google search)
Thank you

bowlhead99

A bit like income tax personal allowance, you can use your capital gains annual exempt amount in whichever way would give your the best result.  So in the example, you would take the £12300 off the £20k of residential property or carried interest gain to use your exemption, leaving £7700 which is not exempt and would attract 18% or 28%;  and then all of your £20k profit on the shares would get the 10%/20% rate. 

If your gains cross you over the basic-to-higher rate threshold resulting in some needing to be charged at high rate or low rate, it doesn't matter which order you count them in, because the differential from tipping from basic to higher is 10% whether you're going from 10 to 20 or 18 to 28.  But it does make a difference to your result whether you choose to take your exemption against the more expensively-taxed activity or the more lightly-taxed activity, so you should take the exemption off your residential property or carry gains first.

Always worth making sure you're using the exemption in the most sensible way in your computation.  For example if you had £200k that qualified for entrepreneurs relief (only chargeable at 10%) it would be more efficient to use the exemption against the 18/28 stuff first, and if none, then 10/20 stuff, and only if you had some exemption left over would you use it against the 10/10 stuff. 

elbutre

Excellent, thanks very much for your explanation, it is all very clear and good to know how to allocate the AEA to my advantage

Thank you