Getting on top of Capital Gains Tax

Last year’s Budget changes means it’s more important than ever to get on top of Capital Gains Tax (CGT), so you can manage your assets as tax-efficiently as possible.

At a glance

• If you sell or dispose of an asset that’s gone up in value, you may need to pay Capital Gains Tax (CGT) on the profit, or gain. 
• This tax year, the first £3,000 of any ‘capital gain’ is tax-free, but you may need to pay CGT above that annual exempt amount. 
• CGT now stands at 18% for basic rate taxpayers, and 24% for higher or additional rate taxpayers who dispose of any qualifying asset.
• Financial advice can help you make tax-smart decisions on how, and when to sell an asset.

Capital Gains Tax (CGT) may not be the UK’s ‘most hated’ tax, (that honour goes to Inheritance Tax), but it can still catch many of us out. CGT is a tax on the profit, or ‘gain’ that you make when you sell or even gift an asset that’s increased in value.

It’s a complicated area of tax-planning. Some people pay who could have mitigated some or all of the tax, while others forget to declare gains, and may even face fines.

Which is why it’s wise to get your head around CGT and take financial advice, so you don’t end up paying more than you need to.

These are some of the most common questions we’re asked about CGT, plus some practical tips on how it works, and how to pay the right amount at the right time.

What is Capital Gains Tax?

CGT is a tax on the profit or gain that you’ve made while you’ve owned the asset. It’s not a tax on the total sale price itself.

So, if you bought some shares for £10,000 and sold them for £15,000, your capital gain or profit is £5,000. That’s the amount assessed for CGT. You’d only need to pay CGT on £2,000 of that, since the first £3,000 would be covered by your annual allowance.

Should I be paying Capital Gains Tax?

Almost any personal possession can be subject to CGT, from shares and investments to buy-to-let properties, second homes, jewellery and antiques.

Some items are exempt from CGT, including:

• Shares or investments held within a pension or an ISA – these are free of Capital Gains Tax
• Your main residence
• Your car
• Any gifts you make to charity

Is there a tax-free allowance for CGT?

Until the end of the 2024/25 tax year, the first £3,000 you gain is tax-free – this is called your annual exempt amount. In her Autumn Budget, the Chancellor didn’t announce changes to the CGT allowance.

How much CGT will I have to pay?

This depends on your income, and your marginal tax rate.

If you pay the basic rate of tax and the gains you’ve made are still within the basic-rate band, you’ll pay 18% CGT on all assets.

If you’re a higher or additional-rate taxpayer, or your gains combined with your income bring you into the higher/additional rate, you’ll pay 24% for most assets including residential property.

How do I declare capital gains?

When you sell assets and have made gains of more than £3,000, you must declare it to HMRC.

How and when you do this depends on the asset or assets you’ve sold.

If you sell a property and it completed after 27 October 2021, you have just 60 days to report your gain and pay the tax due. 

To do this, you’ll need to set up a Capital Gains Tax on Property account on the government website.

If you made a gain selling or giving away other assets, you can report and pay the tax straight away using the real-time service on the government website. Or you can report it in a self-assessment tax return in the tax year after you sold the assets.

HMRC works out how much CGT you owe, how to pay it and when the deadline is.

How can I bring my CGT bill down?

If you want to reduce the amount of CGT you pay, you’ve got a number of options:

• You could gift assets to your spouse or partner
  Most transfers of capital between spouses or civil partners are free from CGT. By transferring assets to them, you’ll both be able to use your annual allowances – making the first £6,000 of the gain tax-free.
• You could increase your pension contributions
  The amount of CGT you pay is linked to your rate of Income Tax. So, if you’re close to either of the tax thresholds, you could look at ways to keep your income just inside your current tax band. You could pay more into your pension which reduces your taxable income and comes with tax relief too. Staying within your current tax band directly affects how much CGT you’ll pay.
• You could spread the sale of an assets across several years;
  With CGT, you can’t carry forward any unused allowance from the previous year. But if you sell your assets gradually over a number of years, instead of all at once, you may keep the gains made each year just within the annual allowance – legitimately sidestepping a CGT bill
• You can maintain or improve your assets
  If you make improvements to a holiday home, or conserve a valuable painting, you can write off those costs against CGT.
  
  What you choose to do will depend on what suits your personal circumstances, and your plans for the future. CGT is an area of tax planning that can have long term effects on your financial situation, so it pays to seek financial advice before you commit to a course of action you can’t undo.

I’ve heard about ‘Bed and ISA’. What does that mean?

‘Bed and ISA’ means selling up some investments and buying them back within a tax-efficient ISA wrapper. ‘Bed and ISAs’ are like ‘double-deals’, allowing you to sell existing investments and use the proceeds to open or top up an ISA account. You can then buy the same investments back, choose other investments or simply keep the cash in your ISA.

This is a win-win. It means you can use up your ISA allowance and protect yourself from CGT. It can also be a practical, tax-efficient option if you need to sell gains up to the CGT annual allowance, but you’re not ready to sell the whole investment.

What if I make a loss on an asset?

Of course, assets don’t always go up in value.

If you make a profit when selling one item, but a loss when selling another, you can deduct the loss from your gain when calculating how much CGT overall you need to pay. You can also carry forward any losses that haven’t been used to offset gains, but you must report the losses within four years.

Even if you don’t owe any CGT, it’s still a good idea to declare any losses on your tax return. This will make it less of a headache if you want to offset gains against them in future years.

What happens about CGT if I sell my business?

If you’re a sole trader or business partner and you’ve owned the business for at least two years, you may qualify for Business Asset Disposal Relief, which used to be known as Entrepreneurs’ Relief. This brings the rate of CGT on disposals of certain business assets down from 20% to 10% but only until the end of this tax year.

In the 2025/26 tax year, the rate of CGT will increase to 14% when selling a business, and then again in 2026/27 to 18%. Where appropriate, this increases the attractiveness of making a disposal before the rates increase.

Getting advice about CGT

CGT can sound complicated but – as with most smart tax-planning – the thing to do is not just hope it’ll go away. Taking good advice ahead of tax-year end on 5 April means you can be confident about your decisions, make the most of your assets, and feel comfortably in control of your financial affairs.

Need help getting your head around CGT, and whether it applies to you? Just get in touch with us and talk it through.;

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.