Understanding Capital Gains Tax: How to Manage and Reduce Your Bill

Capital Gains Tax (CGT) is an essential consideration for anyone selling assets that have appreciated in value. Whether you're selling stocks, property, or business assets, understanding how CGT works and planning ahead can help minimise your tax bill and maximise your financial gains.

At Cleveden Park Wealth, we help clients navigate CGT rules and develop tax-efficient strategies to protect their wealth. Here’s what you need to know about CGT and how to manage it effectively.

What is Capital Gains Tax (CGT)?

CGT is a tax on the profit you make when you sell or dispose of an asset that has increased in value. It is not the total amount you sell the asset for, but rather the difference between the purchase price and the sale price.

Each individual has a CGT-free allowance, known as the Annual Exempt Amount, which for the 2024/25 tax year is:

• £3,000 for individuals

• £1,500 for trusts

  
  

If your total capital gains fall below this threshold, you won’t need to pay CGT.

For example, if you bought shares for £10,000 and sold them for £15,000, your capital gain would be £5,000. After deducting the £3,000 allowance, you’d only pay CGT on the remaining £2,000.

When Do You Have to Pay CGT?

CGT is due when you dispose of an asset, which includes:

• Selling it

• Gifting it (except to a spouse or civil partner)

• Exchanging it for another asset

• Transferring it into a trust

Some disposals are CGT-exempt, such as gifts to your spouse or civil partner or assets left in your estate (though they may be subject to Inheritance Tax).

However, gifting assets to other family members (such as children or siblings) is treated as a sale at market value, meaning CGT may still be due.

Which Assets Are Subject to CGT?

CGT applies to a wide range of assets, including:

• Stocks and shares

• Second properties (excluding your main residence if it meets certain conditions)

• Business assets

• Valuable personal items (e.g., antiques, artwork, jewellery)

However, some assets are exempt from CGT, including:

• Your main home (if it meets HMRC criteria)

• Government bonds (gilts)

• Certain tax-advantaged shares

What Are the CGT Rates?

The CGT rates increased in October 2024, meaning:

• Basic-rate taxpayers now pay 18% on gains

• Higher-rate taxpayers now pay 24% on gains

However, business owners selling qualifying assets may benefit from Entrepreneurs’ Relief, reducing the CGT rate to 10% on the first £1 million of gains.

How to Reduce Your Capital Gains Tax Bill

1. Use Your CGT Allowance

Each individual has a £3,000 CGT exemption. If you're married or in a civil partnership, you can transfer assets to your spouse to double your combined CGT allowance to £6,000 before selling.

2. Maximise Tax-Efficient Accounts

• ISAs – Any gains made within a Stocks and Shares ISA are completely tax-free.

• Pensions – Moving assets into a pension, such as a Self-Invested Personal Pension (SIPP), can help avoid CGT while benefiting from tax relief.

3. Time Your Sales Wisely

If you're approaching the tax year-end, consider selling assets in two different tax years to spread your CGT liability over two allowances.

4. Gift Assets to a Spouse or Civil Partner

Gifting assets to your spouse or civil partner before selling them allows both partners to use their CGT allowance, reducing the total tax due.

5. Use Holdover or EIS Relief to Defer CGT

• Gift Holdover Relief – If gifting business assets, CGT can be deferred until the recipient sells the asset.

• Enterprise Investment Scheme (EIS) – Investing in an EIS defers CGT, and if held for 3+ years, gains are completely CGT-free.

6. Consider a Share Exchange Strategy

• Sell investments and rebuy them within an ISA or pension to shield future growth from CGT.

• Be mindful of your CGT allowance to avoid triggering an unnecessary tax bill.

  
  

Need Help Managing CGT?

Understanding capital gains tax and how it applies to your investments can be complex, but the right strategy can significantly reduce your tax bill and protect your wealth.

At Cleveden Park Wealth, we help clients make the most of tax-efficient opportunities, whether that’s structuring your investments, utilising ISAs and pensions, or timing asset disposals effectively.