Recent Capital Gains Tax Changes: What you need to know

In line with the 2022 Autumn Statement announcements, changes in Capital Gains Tax (CGT) have now come into force.

The first reduction in the 2023/24 tax year took the annual exempt amount (AEA) down to £6000 for individuals and £3000 for most trustees. This has been further reduced in 2024/25 to £3000 for individuals and £1,500 for most trustees. It will remain fixed permanently at these levels for future years.

Let’s look at how the changes could affect your financial position and explore ways to mitigate their impact.

But first, a quick recap on some of the rules around CGT.

What is Capital Gains Tax?

You pay CGT on the profit you make when selling or disposing of an asset that has increased in value. It’s important to note you only pay the tax on the gain, not the whole amount of money you receive.

So, if all your gains in any one year are under your tax-free allowance you don’t need to pay any CGT.

However, you can’t carry forward any unused allowances from one year to the next – it’s a case of ‘use it’ or ‘lose it’.

And remember, ‘disposing’ of an asset is not just selling it. It can also include giving it away as a gift, transferring it to someone else, swapping it for something else and getting compensation for something.

What assets do you pay CGT on?

You need to pay CGT on the following items, known as ‘chargeable assets’:

• Personal possessions like art, jewellery and antiques worth £6000 or more (excluding your car)
• Property that’s not your main home
• Your main home if you’ve let it out, used it for business or it’s very large
• Any shares that are not in an Individual savings account (ISA) or personal equity plans (PEP)
• Business assets

But you don’t pay it on any gains from:

• ISAs or PEPs
• UK government gilts and Premium bonds
• betting, lottery or pools winnings

You must report by 31 December in the tax year after you made your gain and pay by 31 January. For example, if you made a gain in the 2024 to 2025 tax year, you need to report it by 31 December 2025 and pay by 31 January 2026.

CGT rates

The rate of CGT you pay depends on your total taxable income for the tax year. As of 2024/25, the CGT rates for higher or additional rate taxpayers are 28% on gains from carried interest, 24% on gains from residential property and 20% on other assets.

And if you’re a basic rate taxpayer, CGT on any gains falling within the basic rate Income Tax band is 18% for residential property and 10% on other assets.

Private Residence Relief (PRR) continues to apply on disposals of main residences, but you may be liable for CGT on other residential property gains such as buy-to-let properties, business premises, land or inherited property.

Who does it apply to?

Any individual, trustee or personal representative who has realised a gain is liable for CGT. What you pay will depend on your overall gains above your allowances.

The annual exempt amount (AEA) is separate from your Personal Allowance (£12,750) which is your tax-free allowance for income, salary or rental income.

What about if you’re married?

If you’re married, have a partner or own assets with another person, you can combine your exemptions. This means, between you, you could have double the amount of tax-free gains.

You also do not pay CGT on any assets you give to your husband, wife, or civil partner, however if you separate then you have up to 3 years after the year you cease to live together to make no gain or no loss transfers of assets.

Also be aware that if your spouse or civil partner later disposes of the asset, they may have to pay tax on any gain. This is why it’s important to keep careful records as their gain will be calculated on the difference in value between when you first owned the asset and when they disposed of it.

How can you mitigate the impact of the changes?

The 2024/25 reduction to the CGT allowance to £3000 for individuals (£1500 for trustees) means proactive tax planning is more critical than ever. Consider the following steps:

• Make full use of your £3000 AEA. While it may be less generous than in previous years, you can’t carry it forward, so make the most of it.
• Plan the sale of your assets carefully over different tax years to maximise your allowance and reduce the overall liability.
• Consider transferring assets to a spouse or civil partner so you can spread or reduce the CGT burden.
• Offset losses from previous years as these can be brought forward, provided you report them to HMRC within four years from the end of the tax year in which the asset was disposed of.
• Take advantage of tax-efficient wrappers like ISAs. These will not only give you tax-free gains and withdrawals but also enable you to consider a number of investment options in line with your risk profile and financial objectives.
• Keep contributing to your pension as another way of getting tax relief and reducing your income tax bill while potentially lowering your future CGT liabilities.

Keeping records

Maintain a detailed record of what you paid for an asset, the original purchase cost, additional expenses, legal fees and the selling price. This enables you to follow a clear trail if you need to calculate the exact gain later.

Next steps

Navigating CGT can be complex, especially with the recent changes in the allowances. It’s worth seeking professional advice to make sure you’re taking full advantage of the reliefs and exemptions available.

Please don’t hesitate to contact a member of the team if you’d like to find out more about proactive tax planning.

The value of investments can fall as well as rise and is not guaranteed. Past performance is not a guide to future performance.