What is Capital Gains Tax?

Capital Gains Tax (or CGT as it’s commonly referred as) is the tax that is payable on the ‘gains’ (aka profit) that you would have made on an asset, if you were to sell or dispose of it.

The most common example of this is if you were to sell a rental property. If you sold it for £40,000 more than you paid for it, you’d need to pay tax on that amount – not the total amount that you sold the asset for.

Capital Gains Tax

How much CGT will I have to pay?

Unfortunately, for the 2023/24 tax year, the CGT allowance has decreased by more than 50% since 2022/23 – from £12,300 to just £6,000. This means anyone who makes more than £6,000 in gains from the sale of assets in a year will be required to pay CGT on the excess amount, at their marginal tax rate.

Going forward, the Chancellor also announced that the CGT allowance would be decreasing further for the 2024/25 tax year and beyond, to just £3,000.

How much CGT you pay will vary depending on your tax band in that particular year, plus taking into account the CGT free allowance of £6,000 (soon to be £3,000), that every individual is entitled to. This allowance can reduce or even eliminate any tax payable, depending on the amount you’ve made.

If you fall into the basic rate of tax, you’ll pay 10% on gains from assets, and 18% on gains from residential property and ‘carried interest’.

However, if you’re in the higher rate of tax, or a trustee of someone who has died, you’ll pay a total of 20% on gains from the assets, and 28% on residential property/carried interest.

Savings & Investments

What do I have to pay CGT on?

You do not have to pay any CGT on your main residence, unless it is situated on land larger than one acre, part of it is rented, or it is used for business purposes. You do however have to pay CGT on any property that is NOT your main residence (i.e. certain investments and second homes).

You also have to pay CGT on shares not in an ISA or pension, any business assets, investment trusts, land, overseas assets, exchange-traded funds, and items worth over £6,000, except for a car.

How can Matthew Douglas help me with CGT?

For an investor, it is vital to be aware of the decreasing CGT allowance. Going forward, even a small gain may cause the allowance to be exceeded. There are some investment products available that can help to mitigate your CGT liabilities, including pensions and ISAs, as well as offshore and onshore bonds.

Working to reduce the amount of Capital Gains Tax that you’ll pay is a complex process, which is why it’s always recommended to seek help from finance professionals such as ourselves. Our team of qualified financial advisers can help to advise and guide you on the best ways to reduce the amount of CGT you’ll pay, including offering cashflow modelling to help to mitigate Capital Gains Tax.

Rules around CGT can be complex, and can also change depending on your circumstances. We can help you to navigate through this tricky process, utilising options such as tax relief, allowances and exemptions to reduce your tax liability.

Get in touch with our team to book a complimentary meeting with one of our fully qualified advisers.

Contact us about Capital Gains Tax