In the weeks leading up to the 2024 Autumn Budget, it became clear that the government would need to raise additional revenue to fill gaps in public spending.
Then, when the Budget eventually arrived in October 2024, the new chancellor, Rachel Reeves, introduced changes to Capital Gains Tax (CGT) rates, which could affect the amount you have to pay when disposing certain assets.
Indeed, you may be liable for CGT on profits from selling assets such as:
- Shares and funds (unless you hold them in a pension or ISA)
- Possessions sold for more than £6,000 (excluding your car)
- A business
- Second or buy-to-let properties.
The Office for Budget Responsibility estimates that CGT will generate £15.7 billion for the government in 2024/25, equating to roughly £550 per household.
Though, with the increased rates, this figure could rise this year, making it even more important to consider ways to mitigate your liability.
In the past, we’ve written extensively about mitigating tax – such as our articles covering the 60% Income Tax trap and dealing with pension and Inheritance Tax changes announced in the Budget.
This time, we’re turning our attention to CGT. Continue reading to understand the changes introduced in the Budget, and some practical ways to reduce a potential CGT bill.
While Capital Gains Tax rates have risen, the Annual Exempt Amount remains unchanged
As mentioned, Rachel Reeves announced several changes to the CGT regime in the 2024 Autumn Budget.
From 30 October 2024, the basic rate of CGT rose from 10% to 18%, while the higher rate increased from 20% to 24%.
This aligned CGT rates with the charge for gains generated from selling residential properties (excluding your main residence).
The government also announced that, while the lifetime limit for Business Asset Disposal Relief (BADR) will remain at £1 million, the lifetime limit for Investors’ Relief (IR) will fall from £10 million to £1 million.
Meanwhile, the BADR and IR CGT rates will still be charged at 10%, until 6 April 2025, when they’ll rise to 14%. These rates will then rise again from 6 April 2026, to 18%.
Combined, figures from the government website predict that this could raise an additional £1.44 billion in 2025/26.
But crucially, before any gains you make become liable for CGT, you can benefit from an Annual Exempt Amount, which allows you to realise a certain amount of tax-free profit.
In April 2023, the government reduced this threshold from £12,300 to £6,000, and it fell again to £3,000 in April 2024.
However, it was frozen at this level, meaning there were no further changes to the Annual Exempt Amount announced in the Budget. Still, the changes introduced could affect you in several ways.
For instance, if you’re planning to sell investments held outside of tax-efficient wrappers, such as pensions or ISAs, higher rates could mean that a more significant portion of your gains could be subject to tax. As an example, imagine you purchased shares worth £20,000 years ago, and now you’re selling them for £35,000.
The capital gain is the difference between the two, which, in this instance, is £15,000. After the £3,000 Annual Exempt Amount is applied, your taxable gain would fall to £12,000. If you’re a higher-rate taxpayer paying CGT at 24%, you would face a potential tax bill of £2,880.
Also, while CGT rates on residential properties haven’t changed, it’s still important to review the tax implications of balancing property investments with other taxable assets in your portfolio.
3 simple yet effective ways to potentially reduce your Capital Gains Tax liability
While the aforementioned changes might affect the way you approach your investments, there are several steps you can take to manage a potential CGT bill. Read on to discover three of these methods.
1. Make the most of your ISAs
If you’re planning on growing your investments or selling some assets in the coming year, it may be wise to make the most of your ISAs.
This is because any profits you earn from a Stocks and Shares ISA are not subject to Income Tax or CGT, meaning you can freely invest without worries of an increased tax bill.
So, if you make full use of your ISA allowance – which stands at £20,000 in 2024/25 and will remain at this level in 2025/26 – you could continue to grow your investments while minimising your exposure to tax.
Even if you are facing higher CGT in other areas, generating gains within an ISA could help to mitigate the overall tax burden on your finances.
While past performance is not a reliable indicator of future performance and returns are never guaranteed, strategic use of your ISA could still be a valuable tool in managing your tax liability.
2. Offset your gains against your losses
When you think about CGT, there’s a chance you may focus solely on gains. Though, losses can also help you manage your tax bill.
You can typically offset capital losses against gains made in the same tax year, potentially reducing your overall liability.
For instance, imagine you sell shares outside of an ISA and make an £8,000 profit. Thanks to the Annual Exempt Amount of £3,000, you’d only be liable to pay tax on the remaining £5,000.
If you’re a higher-rate taxpayer, this would mean the CGT you owe would be 24% of £5,000, equating to £1,200.
Meanwhile, if you sold another asset later in the year and made a £3,000 loss, you could offset this against your earlier gain. This would reduce your total taxable gain to £2,000, significantly reducing your CGT liability to just £480. Better yet, you can typically carry forward up to four years of unused losses, meaning you could use previously undeclared losses to minimise your tax liability further.
3. Consider splitting your assets between you and your partner
A simple way to reduce your exposure to CGT is by transferring assets between yourself and your spouse or civil partner.
Since the CGT Annual Exempt Amount is an individual allowance, you could effectively double your tax-free threshold to £6,000 before you become liable for tax.
This means that, by strategically sharing assets, you and your spouse could benefit from greater investment gains and ensure that more of your profits remain tax-free.
This approach could be especially beneficial if one partner is in a lower tax band, as their gains would be taxed at a lower rate.
Just note that if you do this and then later liquidate the asset, tax is typically charged based on the value of the asset when one partner first purchased it, rather than when it’s handed to the other.
Get in touch
If you’re still concerned about your CGT liability this year, we could help you explore strategies to minimise your exposure to the tax.
To find out how we can help you, please use our search function to find your nearest Verso office, email us at contact@versowm.com, or call 020 7380 3300.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
The Financial Conduct Authority does not regulate tax planning.
