Capital Gains Tax Planning

CGT is charged on the gains made when certain assets are sold or transferred. Everyone has an annual CGT exemption. This allowance currently stands at £12,300 and is frozen at this level until 6 April 2026. So, if your capital gains this tax year or in each of the following four tax years are below this amount, you’ll pay no tax and therefore have nothing to worry about.

However, gains above the annual exemption are charged at 10/18% or 20/28% depending on your other income and type of asset (residential property sales for example are taxed higher at 18% and 28%).

So, what strategy can you apply to reduce your potential CGT bill?

Many individuals make insufficient use of individual savings accounts, more commonly known as ISA’s. Some don’t realise that the current annual ISA allowance is £20,000 and that capital gains are tax-free on all ISA investments, no matter how big. By having an effective investment portfolio funded via your ISA, all profitable gains are tax free. Our accountants can assist you with setting this up.

The annual allowance of £12,300 mentioned previously is unfortunately a use it or lose it deal with HMRC, which means you can’t carry any part of it into the next tax years. However, you can carry forward losses. Meaning, if you make a loss in one year, think ahead to the following tax year as you may well be able to offset this loss against any future capital gain. Just remember to include it in your tax return otherwise HMRC won’t allow this. If you need help filing you CGT tax return, our accountants can handle it for you.

Transferring assets to a spouse or civil partner can also help to bring down the CGT bill if they are in a lower tax bracket or haven’t fully used their individual CGT allowance. This is because every individual has their own allowance, which means a married couple in 2022/23 could potentially realise tax-free capital gains worth up to £24,600. Transfers between spouses and civil partners are usually tax-free, but we advise you speak to one of our accountants before making any transfers.

Since the rate at which you pay CGT is dependent on your income tax band, reducing your income tax rate can have a knock-on benefit on your CGT.

Two simple ways you can reduce your taxable income is by contributing more to your pension, making charitable donations or even restructuring how you’re paid.

By transferring assets to spouses who pay tax at the basic rate or who don’t work, higher-rate taxpayers may also be able to halve the tax liability they incur.