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Everyone is entitled to an annual CGT allowance, known as the annual exempt amount. For the 2023/2024 tax year, this exemption is £6,000. If you don't make full use of your CGT allowance in a given tax year, you can’t carry it forward to the next.
It is also worth noting that the annual CGT exemption is reducing to £3,000 in the 2024/2025 tax year.
As we approach the new tax year, starting on 6th April 2024, it may be beneficial for investors to consider utilising their CGT allowance to optimise their financial planning and make use of this year’s allowance before it is lost.
Here are some key considerations:
Any gains up to the exempt amount are tax-free. After this, the rate of CGT that you pay depends on your overall income. For 2023/2024, the rates are 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers. Residential property gains are subject to different rates: 18% for basic rate taxpayers and 28% for higher and additional rate taxpayers.
Losses and Offsetting Gains
Investors can offset capital losses against capital gains. It may be beneficial to review your portfolio for any investments that have incurred losses to offset the gains and reduce your overall CGT liability.
To reduce future CGT bills, consider tax-efficient investments, such as Individual Savings Accounts (ISAs) and pensions, where gains can grow tax-free or tax-deferred.
Gifts and Transfers
Transfers between spouses or civil partners are usually not subject to CGT, which means that assets can be transferred between partners without paying tax, as long as they are not separated. This may be beneficial if one partner is likely to exceed their annual CGT allowance and the other has unused allowance.
However, it's essential to understand the rules surrounding gifts and transfers to ensure compliance. If you are unsure, speak to a tax or financial adviser.
Reliefs and Exemptions
Certain reliefs and exemptions may apply, such as Entrepreneur's Relief for business assets or Principal Private Residence Relief for your main home. Be aware of the conditions and criteria for these reliefs.
Timing of Sales
The timing of selling assets can impact the tax liability. Consider deferring sales to a new tax year or spreading sales over multiple years to make the most of annual exemptions.
It is important that you maintain accurate records of all transactions, costs, and disposals. This will help you to calculate gains or losses accurately for tax purposes.
Remember, tax rules can change, and individual circumstances may vary. It’s always a good idea to seek advice for specific guidance based on your personal financial situation and goals.
Please note: This content is for general information only and does not constitute advice. The information is aimed at retail clients only.
The content was accurate at the time of writing. Whilst information is considered to be true and correct at the date of publication, changes in circumstances, regulation and legislation after the time of publication may impact on the accuracy of the article.
This information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change and tax implications will be based on your individual circumstances.
The Financial Conduct Authority does not regulate advice on taxation.