How to Mitigate Capital Gains Tax in 2024-25

Capital gains tax (CGT) has been prominent in the headlines since the Autumn Statement on 30 October 2024.

In that budget, the basic and higher rates increased on certain asset disposals, leading many to ask how to mitigate investment taxes in 2025.

This article discusses different options for reducing CGT, even after the Chancellor’s changes to the tax system in October.

What is capital gains tax (CGT)?

Capital gains tax is often levied when someone sells (“disposes of”) something of value (an “asset”), making a profit (a “capital gain”) in the process.

For instance, suppose you spent £1,000 on shares in a company two years ago. They are now worth £1,500, and you decide to sell them, generating a £500 profit. CGT might apply to that £500 profit – e.g. 20%, leading to a £100 tax bill.

What does CGT apply to?

Many assets are subject to CGT when they are sold at a profit.

For instance, if you sell an additional property (like a buy-to-let), the profit you (hopefully!) make will likely incur CGT. Similarly, gains on shares are often subject to CGT.

However, certain assets are not subject to CGT. For instance, UK government bonds (gilts) are exempt. Moreover, your main family home is exempt under the “main residence relief” rules.

What has changed under the Autumn Statement?

Before 30 October 2024, the UK had two main “classes” of CGT.

The first applied to non-property asset disposals (e.g. shares) and was divided into the basic rate and higher rate – 10% and 20%, respectively.

The second applied to chargeable gains on property (e.g. Buy to Let) and was levied at 18% on the basic rate and 24% on the higher rate.

With the arrival of the Autumn Statement, however, these two classes have effectively been merged into the second.

The basic and higher rates on property remained unchanged, but the rates on non-property chargeable gains were equalised (now also 18% and 24%).

What does this mean for you?

Unfortunately, the CGT change in the Autumn Statement will make it more challenging to generate tax-efficient investment returns in 2025.

One upside is that the CGT rate for property has not changed. As such, the housing market appears to have been largely unaffected by the tax reforms, approaching pre-pandemic levels in November 2024.

However, the government is clearly trying to close the tax net on investors. Already, we have seen the CGT-free allowance (the Annual Exempt Amount) fall twice over the last two tax years—it was previously £12,300 but is now only £3,000.

Now, with CGT rates at 18% and 24%, chargeable gains made outside of the Annual Exempt Amount will be more heavily eroded.

Fortunately, investors are not helpless. There are still strategies at your disposal to maximise the tax efficiency of your portfolio, helping you keep more of your hard-earned money.

How can I adapt my financial plan?

CGT is only levied when an asset is “disposed of” (sold) and a profit is made. As such, if you are investing for the long term, one strategy would be to simply hold onto your investments.

Who knows? In the next 5-10 years, perhaps a new government will take power and lower CGT rates. At which point, an investor could sell (hopefully when their assets have also risen further in value) and retain more of their wealth in the process.

However, you cannot build a robust investment plan based on what “might happen” in politics. Rather, it is better to utilise the tools available now.

For instance, the Annual Exempt Amount “refreshes” every tax year (in April). As such, one approach is to spread out asset disposals across multiple tax years, if you can afford to wait.

On this subject, be careful to maximise your tax allowances each tax year. Many of them will simply wipe out any unused allowance on 6 April. For instance, if you do not make full use of your Annual Exempt Amount, you cannot “carry it over” to the next tax year.

For those who are married or in a civil partnership, you can also make tax-free transfers to your spouse/partner. This can open opportunities to maximise your CGT savings as a household.

For instance, suppose you are a higher rate taxpayer and your spouse only pays the basic rate. By transferring shares to them, these could be sold at a lower rate (20% instead of 24%). If they have not yet fully used their Annual Exempt Amount, they might even be sold tax-free.

Of course, there are also tax-efficient “vehicles” at your disposal, such as ISAs and pensions. Both allow investors to generate capital gains within their respective “wrappers” without CGT.

Just make sure you mind the rules about annual allowances. For ISAs, the limit is £20,000 per year. For pensions, the maximum total contribution for the year (whilst receiving tax relief) is £60,000; or, 100% of your earnings (whichever is lower).

Interested in discussing your financial plan with an adviser? Please don’t hesitate to contact a member of the team to find out more about your options.

The value of investments can fall as well as rise and is not guaranteed.