UK Tax Planning Guide: Understanding Capital Gains Tax Allowance 2024/2025 and Maximising Your Benefits

Capital Gains Tax (CGT) is a major part of the UK tax system and affects individuals and businesses who make a profit when selling or disposing of certain assets. This includes property (excluding your main home in most cases), shares, and valuable personal possessions. Understanding how CGT works and how to make the most of available reliefs and allowances is crucial, especially with the changes introduced for the 2024/2025 tax year.

With the annual exemption now reduced, taxpayers need to be more proactive than ever. This guide, brought to you by Numbersmith, outlines everything you need to know about the Capital Gains Tax Allowance for 2024/2025 and offers strategies to manage your tax liabilities efficiently.

What Is the Capital Gains Tax Allowance 2024/2025?

Annual Exempt Amount Explained

The Capital Gains Tax Allowance, also referred to as the Annual Exempt Amount, is the threshold up to which individuals and trusts can make gains without paying any CGT. For the 2024/2025 tax year, this exemption has been halved:

• Individuals: £3,000

• Trusts: £1,500

This is a significant reduction from the previous year’s allowance and means more people will find themselves liable for CGT, even on relatively modest gains.

Changes for the 2024/2025 Tax Year

Here’s how the allowance has changed:

• 2023/2024: £6,000 (individuals), £3,000 (trusts)

• 2024/2025: £3,000 (individuals), £1,500 (trusts)

This change underlines the importance of planning asset disposals carefully to ensure you're not caught out.

How CGT Works in the UK Tax System

Taxable Gains vs Tax-Free Gains

Capital Gains Tax applies only to the gain or profit made on an asset, not the full amount received. For example, if you bought shares for £8,000 and sold them for £12,000, your gain is £4,000. If the annual exemption is £3,000, only £1,000 of that gain would be taxable.

There are also types of gains that may be tax-free, including:

• Gains from ISAs or PEPs

• Lottery, betting, and pool winnings

• Personal vehicles (unless used for business purposes)

• Principal Private Residence (with conditions)

Capital Gains Tax Rates

The rate of CGT you pay depends on your income. For the 2024/2025 tax year:

• Basic rate taxpayers: 10% on most assets, 18% on residential property

• Higher and additional rate taxpayers: 20% on most assets, 28% on residential property

Gains are added to your total income to determine the applicable rate.

Determining Your Tax Position

Income Tax and Capital Gains

Your CGT liability is closely linked to your income tax position. After deducting your personal allowance (£12,570 for 2024/2025), your remaining income determines whether you fall into the basic, higher, or additional rate band. Any gains exceeding the CGT allowance are then added to this income to assess which tax rate applies.

Personal Allowance and CGT

While the personal allowance applies to income, it indirectly affects CGT by influencing your income tax band. Lower income may mean your gains are taxed at the basic rate, while higher income increases your tax exposure.

Who Pays Capital Gains Tax?

Basic Rate vs Higher Rate Taxpayers

Basic rate taxpayers enjoy lower CGT rates, but even a modest gain can push you into the higher band. It’s essential to calculate your combined income and gains to understand your total tax position.

Spouses and Civil Partners

Assets can be transferred between spouses and civil partners without incurring CGT, allowing couples to:

• Share the annual exempt amount

• Use the lower-income partner’s tax band

• Spread gains to minimise tax liabilities

This is a straightforward yet highly effective strategy for reducing your tax burden.

Maximising Tax Benefits Legally

Using the Annual Exempt Allowance

One of the simplest ways to minimise CGT is to make full use of your annual exempt allowance. If you have multiple assets to sell, consider spreading disposals across tax years to double the benefit.

Transferring Assets to a Spouse or Civil Partner

Transferring assets before sale to a spouse or civil partner can allow both parties to use their exemption and potentially lower CGT rates, especially if one partner falls into a lower income tax band.

Private Residence Relief

Your main home usually qualifies for Private Residence Relief, which exempts it from CGT. However, complications can arise if:

• The property was let out

• Part of it was used exclusively for business

• It wasn’t your only or main home throughout ownership

Always confirm eligibility before assuming no CGT is due.

Tax Reliefs to Reduce Capital Gains

Business Asset Disposal Relief (BADR)

Previously called Entrepreneurs' Relief, BADR allows business owners to pay a reduced 10% CGT on qualifying gains, up to a lifetime limit of £1 million. It’s available on the sale of all or part of a business, business assets, or shares in a personal company.

Enterprise Investment Scheme (EIS)

Investing in EIS-eligible companies offers:

• CGT deferral

• Income tax relief (30% of investment)

• Tax-free gains if shares are held for at least three years

• Loss relief on investments that underperform

Other Tax-Efficient Investment Options

• Individual Savings Accounts (ISAs) – Gains made within ISAs are entirely tax-free.

• Pensions – Contributions reduce taxable income, potentially keeping you in a lower CGT bracket.

• Seed Enterprise Investment Scheme (SEIS) – Similar to EIS, but aimed at very early-stage companies, offering higher reliefs.

Tax Planning Tips for CGT Efficiency

Timing Your Sales and Gains

Spreading disposals across tax years can be highly effective. For instance, selling part of your portfolio in March and the rest in April can double your tax-free allowance across two years.

Making Pension Contributions

Pension contributions lower your taxable income, which may reduce the CGT rate you pay if you’re close to the threshold between basic and higher rates.

Offsetting Losses Against Gains

Any realised capital losses can be used to offset gains in the same year or carried forward to offset future gains. Remember to report the loss to HMRC to retain this benefit.

Real-Life Scenarios and Examples

Example 1:
Alex earns £35,000 annually and makes a capital gain of £5,000. After applying the £3,000 exemption, £2,000 is taxable. As Alex remains in the basic rate tax band, they’ll pay 10% CGT, totalling £200.

Example 2:
Jamie earns £50,000 and has a gain of £10,000. After the £3,000 exemption, £7,000 remains taxable. Because their total income and gains exceed the higher rate threshold, part of the gain will be taxed at 20%.

Common Mistakes to Avoid

• Not using the annual exempt allowance before year-end

• Selling assets without understanding CGT implications

• Assuming your home is always exempt

• Ignoring small gains that push you into higher tax brackets

• Not reporting losses to HMRC for future use

Self-Assessment and Reporting CGT

Submitting a Self-Assessment Tax Return

If your gains exceed the exemption or you have taxable gains to report, you must submit a Self-Assessment tax return. It’s crucial to declare:

• Details of each disposal

• Dates and values

• Any reliefs or exemptions claimed

Reporting Residential Property Gains

Since 2020, you must report and pay CGT on residential property within 60 days of the sale's completion. This applies even if you file a Self-Assessment return later in the year.

Seeking Professional Advice: Why Numbersmith Can Help

CGT can quickly become complex, especially when multiple assets, tax bands, and reliefs come into play. At Numbersmith, our expert team helps clients:

• Minimise CGT exposure

• Time disposals strategically

• Navigate investment tax rules

• Plan for retirement and estate management

With personalised tax planning and in-depth knowledge of the UK tax system, we’re here to ensure your finances are handled efficiently and compliantly.

To check official information, visit Gov.uk Capital Gains Tax

FAQs

1. What is the Capital Gains Tax Allowance for 2024/2025?
The allowance is £3,000 for individuals and £1,500 for trusts.

2. Do I need to report gains if they are under the allowance?
No, but you should keep records. Losses should still be reported so they can be used in future.

3. Can I avoid CGT entirely?
While it’s not always possible, you can reduce or eliminate CGT through allowances, exemptions, and tax reliefs.

4. Are ISAs subject to CGT?
No. Gains within ISAs are completely tax-free.

5. When do I need to report residential property gains?
Within 60 days of the sale, HMRC’s online service will be used.

6. What is BADR, and who qualifies?
Business Asset Disposal Relief allows qualifying business owners to pay 10% CGT on gains, up to £1 million over their lifetime.

Conclusion

The changes to the Capital Gains Tax Allowance 2024/2025 bring new challenges but also fresh opportunities for those who plan carefully. By understanding your tax position and using available reliefs and strategies, you can reduce your CGT burden and make your investments work harder.

With expert advice from Numbersmith, you’ll gain clarity and confidence in navigating your tax obligations. Don’t leave it to chance - start planning today to make the most of your assets in a tax-efficient manner.