Capital gains tax or CGT is the tax you pay on profits when you sell assets, such as shares, property and other investments.
Shrinking allowances and frozen income tax thresholds mean it’s costing more people more money every year.
The tax-free allowance on capital gains was reduced from £12,300 to £6,000 in April 2023 and slashed again to just £3,000 in April 2024. As of 30 October 2024, basic-rate taxpayers pay 18% on gains, while higher and additional-rate taxpayers pay 24%.
This is having a big impact on many people who don’t think of themselves as real investors – but who are finding themselves with a tax bill. Fortunately, there are ways to potentially cut that bill down to size.
1. Use your annual allowance
Each year, you can take a certain amount in capital gains before any tax is due. This is known as your CGT allowance or your annual exempt amount. It works on a ‘use it or lose it’ basis.
If you are building up a large gain, consider selling it in stages over a period of years. By sticking to £3,000 in profits each year, you could avoid paying any CGT at all.
You can also reinvest the money once you have sold your investment, effectively re-setting your gains to zero.
2. Use your losses
You may have losses on some investments in any given year. You can use this to your advantage by offsetting the losses against your profits.
For example, if you have £10,000 in gains and £4,000 in losses, you only have to pay tax on £6,000 of gains. It could be worth timing the sale of assets to maximise the use of losses against gains each year.
If you don’t use your losses this year, you can carry them forward for future tax years. Just make sure you register the losses with HMRC by including it on your tax return.
3. Use a stocks and shares ISA
You can avoid CGT entirely by holding your investments in an ISA. You can pay up to £20,000 into your ISAs each tax year, and any capital gains you make on ISA assets when you come to cash them in will be tax free.
If necessary, you can do a ‘Bed & ISA’ to give your assets ISA protection. This involves selling your existing assets and rebuying them within an ISA. Do this gradually, keeping within your £3,000 per year CGT allowance and you won’t have to pay any CGT in the process.
Investment platforms may offer this service for you.
Have shares from a Sharesave scheme or Share Incentive Plan? Transfer them into an ISA within 90 days of the scheme maturing (if they are worth less than your annual ISA allowance of £20,000). There will be no CGT to pay.
4. Use a pension
Your pension is an investment, and very tax-efficient, especially as you receive pension tax relief on any contributions. There is no CGT to pay on a pension, although it will be subject to income tax.
5. Use your status as a couple
If you’re married or in a civil partnership, you can transfer assets to your spouse with no CGT to pay.
Why? if your spouse hasn’t used up their tax-free allowance and the profits are under £3000, they can sell the asset with no CGT. You just need to make sure you keep a note of the original cost of the asset, as that’s what will be used to calculate tax when your partner sells it.
This is better still if your spouse is a basic-rate taxpayer and you are a higher or additional-rate taxpayer. Tax will be charged at the lower rate.
6. Use your tax bracket
If you expect to earn less income next year perhaps because you are winding down to retirement for example - and be in a lower tax band, deferring the sale of an asset could mean you pay a lower rate of CGT on the gain.
If you think you will be earning more next year, it might make sense to take your profits in this tax year.
7. Use our expertise
At Continuum, we keep a close eye on tax and at ways to reduce its impact. To see how our expertise could help you find ways to cut your CGT, call us today.
Capital Gains Tax rates and allowances - GOV.UK
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment or tax strategy, you should seek independent financial advice before embarking on any course of action.
Investors in ISA’s do not pay any personal tax on income or gains, but ISAs do pay unrecoverable tax on income from stocks and shares received by the ISA managers. Levels and basis of reliefs from taxation are subject to change and their value depends upon your personal circumstances.
A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken. Pension savings are at risk of being eroded by inflation
The Financial Conduct Authority does not regulate taxation advice.
The value of an investment can go down as well as up and you may get back less than you invested. When investing Capital is at risk.
