A financial adviser’s tax year end guide to capital gains tax

Understanding capital gains tax (CGT) is crucial for managing your finances, especially if you’re selling assets that have grown in value.

Planning ahead and using strategies like gifting to spouses or moving investments into tax-efficient accounts like ISAs or pensions can help cut your CGT bill.

Here’s a financial adviser’s guide to what CGT is, when you might have to pay it, and what you can do to manage your bill.

This article isn’t personal advice. If you’re unsure about a course of action, please contact us for financial advice. Tax rules, and any benefits, can change in the future. All investments can fall as well as rise in value so you could get back less than you invest.

What is capital gains tax?

CGT is a tax on the profit you make from selling something you own that’s increased in value. The tax is based on the difference between what you paid for an asset and what you sell it for.

But you do have a CGT allowance called the annual exempt amount.

For the 2024/25 tax year, this is £3,000 for individuals and £1,500 for trusts.

So, if your total gains in a year are below this amount, you won’t need to pay any CGT.

Let’s say you buy shares for £10,000 and you sell them for £15,000. You’ve made a £5,000 gain. £3,000 is tax free and you’ll pay CGT on the remaining £2,000.

When do you have to pay CGT?

CGT is triggered when you ‘dispose’ of an asset, which means you sell it, gift it, or put it into a trust. Some disposals are exempt from CGT though.

For example, you won’t have to pay CGT when you give a gift to your spouse or partner, or when you die (though there is inheritance tax to think about, and your beneficiaries might have to pay CGT on the assets they inherit at a later date).

However, when you give an asset to someone else in your family (other than your spouse), for CGT purposes it’s treated as if you sold it at its current market value. That then means you might have to pay CGT on any increase in value .

Which assets do you have to pay CGT on?

You can be taxed on the profit from selling or giving away lots of different types of assets, including:

• Stocks and shares

• Property that isn't your main home

• Business assets

• Items like antiques, artwork, and jewellery

There are also assets that are exempt from CGT, like:

• Your main home (if it meets certain conditions)

• Most personal use items, with a limited lifespan

• Government bonds (gilts)

• Certain shares that have tax relief benefits

Some investment bonds are also exempt from CGT, and instead they’re taxed as income – this is a bit more complicated and is covered separately.

How have CGT rates changed?

In October 2024, the government announced that standard CGT rates would increase.

For basic-rate taxpayers, the new rate is 18%, and for higher-rate taxpayers, it’s 24% – up from the previous 10% and 20%.

There’s also a special tax relief for people selling businesses, which can reduce CGT to just 10% on the first £1mn of gains, but it only applies to specific business owners.

Deferring CGT – can you postpone paying it?

In some situations, it’s possible to defer paying CGT – for example:

• Gift holdover relief – if you give away a business asset, CGT can be deferred until the recipient sells the asset.

• Enterprise investment scheme (EIS) – by investing in an EIS, you can defer paying CGT on the gain from selling an asset.

The gain will resurface when you sell the EIS shares, but you can also benefit from any growth in the EIS shares being free of CGT if you’ve held them for at least three years.

Share Exchange – how can it help with CGT?

Inside an ISA or pension, your investments grow free of UK income tax and CGT, which is a great way to make the most of available tax breaks.

Share Exchange involves selling an investment, realising a gain, and then immediately buying it back within an HL Stocks and Shares ISA. Although you might need to pay CGT when you sell shares as part of a Share Exchange, any future growth within the ISA won’t be subject to CGT.

You can do the same with your pension. It works the same way but involves reinvesting the proceeds into a pension, like a Self-Invested Personal Pension. This allows you to get potential income tax relief and avoid CGT on future gains.

But don’t forget about your £3,000 CGT allowance when you’re selling investments to move into an ISA or Pension. It could help you but any proceeds raised over the £3,000 allowance could trigger a charge. Remember a pension can’t normally be accessed until age 55 (57 from 2028).

Need more help with saving tax?

If you’d like an expert on financial planning to help you to make the most of your tax allowances, you’re in the right place. My colleagues and I are dedicated to helping clients achieve peace of mind from having a sound financial plan in place.

It starts with a call with our advisory team. You won’t get personal advice on this initial call, but if it looks like advice is right for you, we’ll book your free initial consultation with me or one of our other financial advisers.

We’ll discuss your options with no pressure to take advice and no charge.

If, having heard what advice can offer and you decide to go ahead, there will be a charge which we’ll discuss before you commit to anything.

We can help you make the most of your allowances and pay less tax with careful financial planning. But in complex situations your adviser might recommend speaking to an accountant or lawyer to complement their advice.