CGT: Preserve your wealth in an era of shifting exemptions

Capital Gains Tax is one of the few taxes excluded from Labour’s pledge not to increase after their probable victory in the General Election on 4 July.

The capital gains tax (CGT) exemption for individuals has been eroded in recent budgets.  Previously, taxpayers could receive up to £12,300 in tax-free gains each tax year.  

For 2024/25, the CGT exemption has been reduced to just £3,000.  The last time the CGT exemption was at such a low level was in 1982/83, illustrating a huge change in direction for this valuable allowance which was, until last year,  increasing each year. The erosion of the CGT allowance will result in more taxpayers being subject to capital gains tax.  

For taxpayers in higher tax brackets, CGT rates eat into your gains at a rate of 20% for most assets and a hefty 24% for gains from selling residential property.  Basic rate taxpayers fare a little better, facing rates of 10% and 18%, respectively.

There are a few planning opportunities to lower your CGT bill, ensuring you keep more of your hard-earned money for your future plans.  CGT rules can be a maze, and without expert guidance, you may end up paying more than you need to.  Here are a few simple ways to potentially reduce your capital gains tax liability :

• Use your CGT exemption each year – this allowance cannot be carried forward into the next year, so plan to use it where possible.
• Make use of losses – if you hold assets standing at a capital loss, realising these in the same year as incurring a gain will mean that any losses can be set against the gain.
• Spouse transfer – transferring assets to your spouse or civil partner are exempt from CGT which will allow  you to double the CGT exemption on sale.
• ISA investments – gains (and losses) made on investments held within ISA’s are exempt from CGT so consider transferring investments to an ISA under a ‘bed and ISA’   arrangement.  Essentially this involves you selling investments, realising a capital gain and then immediately buying back the same investment inside an ISA.
• Claim gift hold over relief – this is possible if the gift relates to business assets or transfers to a discretionary trust.

Talk to us if you are thinking of selling assets standing at a capital gain so that we can assess whether any CGT planning can be put in place to reduce the overall liability.