Capital Gains Tax (CGT) is the tax on the profit you make when you sell valuable assets that has gone up in value since you purchased it. The tax is only on the profit, not on the total asset value.
Capital Gains Tax applies to when you sell a second home, if you are selling shares, if you are selling business assets or other high value items.
Investments that are in an ISA or pension are exempt from Capital Gains Tax.
Every person gets an annual Capital Gains Tax allowance to offset some of this tax.
The government announced that from April 2023 Capital Gains Tax allowance decreased from the 2022/23 threshold of £12,300 to only £6,000 from the 2023/24 tax year.
What is the Capital Gains Tax allowance in 2023/24 tax year?
Every person gets an annual Capital Gains Tax allowance to offset some of this tax.
The government announced that from April 2023 Capital Gains Tax allowance decreased from the 2022/23 threshold of £12,300 to only £6,000 from the 2023/24 tax year.
How to split assets with your spouse to reduce your tax bill
If the sale of an asset will give you more profit than the £6,000 annual allowance then you could gift the asset to your spouse/partner to sell provided they haven’t already used their own CGT allowance. They can they sell it and also get their own £6,000 tax free allowance.
This means that couples can combine their allowance and get £12,000 free from Capital Gains Tax in the 2023/24 tax year.
This only applies to individuals who are married or in a civil partnership and living together. If you are living together. It does not apply to those who are in a long-term relationship or live together but are not married.
What is the Capital Gains Tax allowance in the 2024/25 tax year?
The government announced a further drop in the Capital Gains Tax allowance in the 2024/25 tax year to just £3,000 per person.
Can Capital Gains Tax be carried over to the next tax year?
No, any unused Capital Gains Tax allowance will be lost if it is not used.
Who has to pay Capital Gains Tax and when?
The amount of Capital Gains Tax that you have to pay depends on your income.
If you are a higher or additional rate taxpayer and you are selling a residential property then CGT will be charged at 28% on any gain over the annual allowance. For basic rate tax payers this is 18%. There is no CGT on the main family residence.
If you are selling a different type of asset such as investments, then CGT is 20%. For basic rate taxpayers this is 10%.
Certain business assets may also be eligible for a discounted rate. This is known as Business Asset Disposal Relief.
How else can I reduce my Capital Gains bill?
If your Capital Gains Tax liability is significant, you could choose to sell your assets over a period of several years in order to use your full CGT allowance each tax year.
You can offset losses on other assets you have sold. For example, if you sell shares that have decreased in value then you can use this loss to reduce the gain on a different sale.
There is no Capital Gains Tax on any assets that are held in a pension or ISA; if you have shares then you could gradually move them into an ISA (you get an allowance of £20,000 each tax year).
Speak to a financial adviser
Capital Gains tax is complex area but there are many ways that you can mitigate it over time.
A financial adviser can help you to create a plan and work out which assets you need to sell and when in order to make sure you do so in the most tax-efficient way.
Book a no-obligation meeting now or call us on 0117 973 0500.
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.
