Capital Gains Tax (CGT) is a crucial consideration for UK investors when selling assets like property, stocks, and other investments. Understanding how CGT works and strategies to reduce your tax liability can help you maximise your returns.
What Is Capital Gains Tax?
Capital Gains Tax is the tax on the profit (or "gain") made when selling an asset that has increased in value. It applies to:
- Stocks and shares
- Investment properties
- Cryptocurrencies
- Business assets
- Valuable personal possessions (e.g., antiques, art, jewellery worth over £6,000)
CGT is only charged on the profit made from the sale, not the total sale amount.
Who Pays Capital Gains Tax?
CGT applies to individuals, businesses, and trusts in the UK. However, some assets, such as a primary residence or ISAs, are exempt.
Capital Gains Tax Rates (2024/25)
The tax rate depends on whether you are a basic rate or higher rate taxpayer:
| Asset Type | Basic Rate Taxpayer | Higher/Additional Rate Taxpayer |
|---|---|---|
| Shares & Investments | 10% | 20% |
| Property (not main home) | 18% | 24% |
Annual Exemption: Every individual has a CGT-free allowance of £3,000 (2024/25), meaning only gains above this threshold are taxable.
How to Reduce Capital Gains Tax Liability
1. Use Your Annual Allowance
Make sure to use your £3,000 exemption each year by spreading asset sales over multiple tax years to stay below the threshold.
2. Invest in ISAs & Pensions
Assets held in Stocks & Shares ISAs or Self-Invested Personal Pensions (SIPPs) are exempt from CGT, making them tax-efficient investment vehicles.
3. Offset Capital Losses
If you sell an asset at a loss, you can offset this against capital gains to reduce your taxable profit. Losses can be carried forward to future tax years.
4. Transfer Assets to a Spouse
Married couples and civil partners can transfer assets between themselves tax-free. This helps utilise both partners' CGT allowances and potentially lower tax rates.
5. Hold Investments for the Long Term
CGT is only triggered when an asset is sold. Holding investments longer can defer tax liability and allow for better tax planning.
6. Consider Business Asset Disposal Relief
If you're selling shares in your own company or disposing of a business, you may qualify for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), reducing the CGT rate to 10% on qualifying gains.
When & How to Pay Capital Gains Tax
- You must report and pay CGT on UK property sales within 60 days.
- For other assets, CGT is declared in your Self-Assessment tax return and must be paid by January 31st following the tax year in which the gain was made.
Final Thoughts
Understanding and planning for Capital Gains Tax can save investors a significant amount of money. By using allowances, tax-efficient accounts, and strategic asset management, you can legally minimise your CGT liability.
Need professional tax advice? Our experts can help optimise your investment strategy and ensure compliance with HMRC regulations. Contact us today!