Capital Gains Tax (CGT) is a tax levied on the profit made when selling or disposing of an asset that has increased in value. It applies to a wide range of assets, including property, stocks, shares, and valuable personal possessions.
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CGT is applicable when you:
Each individual has an annual tax-free allowance, known as the Capital Gains Tax Annual Exempt Amount. For the 2024/25 tax year, this allowance is set at £3,000 for individuals and £1,500 for trusts. Any gains above this threshold are subject to taxation at different rates:
The UK government has introduced several changes to CGT, including a significant reduction in the annual exempt amount from £6,000 to £3,000 in April 2024. These changes have increased the tax liability for individuals disposing of high-value assets.
Additionally, the Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs' Relief, still allows qualifying individuals to pay a reduced CGT rate of 10% on gains up to £1 million when selling their business or shares.
1. Maximising the Annual Exempt Amount
Since each individual has an annual exemption, couples can transfer assets between themselves to take advantage of both allowances, effectively doubling the tax-free threshold.
2. Timing the Sale of Assets
Spreading asset sales across multiple tax years can help remain within the CGT allowance and reduce overall liability.
3. Using ISAs and Pensions
Investments held within an Individual Savings Account (ISA) or pension fund are exempt from CGT. Utilising these tax-efficient investment vehicles can help mitigate potential CGT liabilities.
4. Investing in Tax-Advantaged Schemes
Certain government-backed investment schemes, such as the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), offer CGT deferral or exemption benefits when investing in qualifying companies.
5. Offsetting Losses Against Gains
If an asset is sold at a loss, the loss can be offset against other capital gains, reducing the overall CGT liability. Losses can also be carried forward to offset future gains.
6. Gifting to Family Members
Transferring assets to a spouse or civil partner does not trigger CGT. This allows for efficient tax planning, especially if one partner is in a lower tax bracket.
7. Utilising Business Reliefs
For business owners, using Business Asset Disposal Relief (BADR) can lower the CGT rate to 10% when selling a business or shares. Similarly, Investor’s Relief can apply a 10% rate on qualifying share disposals.
Understanding and planning for Capital Gains Tax is essential to preserving your wealth. Our tax experts can provide tailored strategies to help minimise your liability while ensuring compliance with HMRC regulations. Contact us today to discuss your CGT planning needs.
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