3 ways to minimise your Capital Gains Tax bill as receipts hit record highs

Capital Gains Tax (CGT) is often thought of as something that only affects the super-wealthy. In recent years, though, reduced thresholds coupled with rising asset values have meant that more people than ever are finding themselves with a CGT bill.

In fact, MoneyAge reports that in the 2021/22 tax year, a record number of people paid CGT. HMRC states that 394,000 people paid CGT, a 20% increase on the year before and more than double the number from 10 years ago.

In addition, CGT receipts totalled £16.7 billion, a 15% increase from the previous tax year.

So, if you’re one of the thousands of people who may need to pay CGT this year, read on to discover three practical ways you might be able to mitigate your bill.

1. Make the most of your annual exempt amount

CGT is chargeable on the profit you make from selling assets such as art, property (that isn’t your home), or shares that aren’t held in an ISA.

Every tax year, you have an annual exempt amount – this is the total amount of profit you can make on the sale of assets before you are liable to pay CGT. In 2023/24, this is £6,000, but it will halve to £3,000 in 2024/25.

If you jointly own an asset, you can combine your annual exempt amount with the co-owner, effectively doubling the amount of profit you can make when you sell the asset. The allowance can’t be carried forward; it only applies to gains made for the current tax year.

If you are married, you can transfer your assets to each other free from CGT. This could be another helpful way to make the most of your individual annual exempt amounts when selling assets.

2. Consider using a tax-efficient wrapper for your investments

A Stocks & Shares ISA can be a very tax-efficient wrapper for investing because any returns you earn within it are free from CGT, Income Tax, and Dividend Tax. 

You can invest up to £20,000 each tax year (2023/24) in ISAs, but this allowance is split between Stocks & Shares and Cash ISAs. If you are saving into both, it’s important to keep track of how much you have deposited so that you don’t exceed the allowance.

A Stocks & Shares ISA is just one of many options that could be helpful depending on your circumstances; we strongly recommend consulting a financial planner to learn more about this. 

3. Reduce your taxable income

The rate of CGT that you pay is dependent on your Income Tax band:

Importantly, your tax band for the year will be calculated by combining your salary, gains, and any other taxable income. So, if this will push you into a higher tax band, it might be helpful to consider ways of reducing your taxable income. This could reduce the rate of CGT that you pay.

Contributing more of your pre-tax salary to your pension is one way that you could do this. Investing into your pension within the limit of the Annual Allowance is a tax-efficient way to save for retirement. This is because you will usually receive tax relief on your contribution at your marginal rate of Income Tax.

In 2023/24, the Annual Allowance is £60,000, or 100% of your earnings, whichever is lower.

There are a range of options that you could consider as part of the tax planning process, but not all of them will be suitable for your circumstances.  If you’d like to know more about this, please get in touch and we can create a bespoke plan for you.

Get in touch

If you’re concerned about how much CGT you may need to pay, and want to learn more about how to minimise your bill, we can help.

Email theteam@fortitudefp.co.uk or call us on 01327 354321.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. 

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.