Capital Gains Tax in 2024/25: What's Changing and How to Plan Ahead

Capital Gains Tax (CGT) is a consideration for anyone selling property, shares, or other taxable investments. From 6 April 2024, changes to the annual exemption mean that more people may have to report and pay CGT, even if they have not needed to before. While tax rates remain the same, the reduction in the tax-free allowance will increase tax liabilities for those disposing of assets in the 2024/25 tax year.

What's Changing in 2024/25?

The most significant change is the further reduction of the CGT annual exemption. In April 2023, the allowance dropped from £12,300 to £6,000. From April 2024, it was cut again to £3,000. This means that anyone making capital gains above this level will now be taxed on a larger proportion of their profits.

For investors in stocks, crypto, or other assets, the same principle applies. Gains that previously fell within the annual exemption may now trigger a tax bill. Even relatively small disposals could result in a CGT charge.

Who Will Be Affected?

Buy-to-let landlords and those with second homes who are looking to sell property will need to reassess their tax position. Similarly, individuals planning to sell shares or other investments, and business owners looking to sell assets, will find that their tax liabilities may now be higher.

In the past, some people may have avoided CGT thanks to the higher annual exemption. However, with the threshold lowering, more individuals will now need to carefully consider the tax implications when it comes to selling their assets, as the changes will affect a larger number of people than before.

How to Manage CGT in 2024/25

Although the CGT exemption is reducing, there are still legitimate ways to manage and reduce tax exposure when selling assets. Some of the key strategies include:

Transfer assets to your partner

Married couples and civil partners can transfer assets between them tax-free. This allows both partners to use their CGT exemptions, effectively doubling the available tax-free amount to £6,000 in 2024/25.

Business Asset Disposal Relief (BADR)

For business owners selling qualifying assets, Business Asset Disposal Relief (formerly known as Entrepreneurs' Relief) remains available. This relief reduces CGT to 10% on the first £1 million of gains, significantly lowering the tax burden compared to the usual rates.

Timing of Disposals

For those with control over the timing of sales, spreading disposals across multiple tax years can help maximise the use of annual exemptions. For example, a seller could complete part of a disposal before 5 April 2025 and the remainder in May 2025 to make use of two years' worth of CGT exemptions.

Using ISAs for Investments

Holding assets within an ISA prevents CGT from being charged. While existing gains outside an ISA are subject to tax, investments should be reviewed to ensure they are structured in the most tax-efficient way.

What You Should Do Now

With the 2024/25 tax year end approaching, now is the time to review your assets and consider any upcoming disposals. If you are planning to sell property, shares, or other investments in the next 12 months, taking action now will help manage tax liabilities.

For those uncertain about how the changes affect them, seeking professional advice can help identify the best approach. Understanding how much tax will be due, whether there are any reliefs available, and whether the timing of a sale should be adjusted can make a significant difference.