How to Avoid Capital Gains Tax UK

In this article, we offer some of the key strategies on how to avoid capital gains tax bills.

What is Capital Gains Tax?

Capital gains tax is a levy due on any profit realised after disposing of certain assets. Disposing of an asset is classed as selling it, giving it away as a gift to anyone other than your spouse or a charity, swapping it for something else, or receiving compensation for it (such as an insurance payout if the asset has been lost or destroyed).

What is the capital gains tax allowance for 2024/25?

The capital gains tax allowance for the 2024/25 tax year has decreased by 50% from its 2023/24 threshold of £6,000 to £3,000.

This means that any individual who makes gains on assets over the value of £3,000 annually will be required to pay capital gains tax on the excess amount at their marginal tax rate. The marginal rates of capital gains tax for the 2024/25 tax year are as follows:

Basic Rate Taxpayer

• 12. Income Range: £12,571 to £50,270
• 13. CGT Rate on Assets: 10%
• 14. CGT Rate on Property: 18%

Higher Rate Taxpayer

• Income Range: £50,271 to £125,139
• CGT Rate on Assets: 20%
• CGT Rate on Property: 28%

Additional Rate Taxpayer

• Income Range: Over £125,140
• CGT Rate on Assets: 20%
• CGT Rate on Property: 28%

You can use our free CGT calculator to calculate your UK capital gain tax in just a few steps.

How to Avoid Capital Gains Tax in UK: 10 Key Steps

Here is how to avoid capital gains tax in UK with 10 simple ways:

1. Use your CGT exemption

Everyone has an annual CGT exemption, which enables you to make tax-free gains of up to £3,000 in the 2024/25 tax year. This can’t be carried forward into the next tax year. So even though the allowance is less than in the past, making full use of it each year could reduce the risk of incurring significant CGT liability in the future.

2. Make use of losses

You might be able to minimise your CGT liability by using losses to reduce your gain. Gains and losses made in the same tax year must be offset against each other, which can reduce the amount of gain that is subject to tax. Unused losses from previous years can be brought forward, provided they are reported to HMRC within four years from the end of the tax year in which the asset was disposed of.

3. Transfer assets to your spouse or civil partner

Transfers between spouses and civil partners are exempt from CGT, which means assets can be transferred from one partner to the other to use each person’s annual CGT exemption. This effectively doubles the CGT exemption for married couples and civil partners. The transfer must be a genuine, outright gift.

4. Invest in an ISA / Bed and ISA

Gains (and losses) made on investments held within an ISA are exempt from CGT, so it makes sense, particularly for higher and additional rate taxpayers, to use your ISA allowance each year. In the 2024/25 tax year, you can invest up to £20,000 in an ISA. For married couples and civil partners, the ISA allowance effectively doubles to £40,000.

5. Contribute to a pension

Making a pension contribution from relevant earnings could help you save on CGT because it increases the upper limit of your income tax band. If, for example, you made a gross pension contribution of £10,000, the point at which higher-rate tax becomes payable would rise from £50,270 to £60,270 (2024/25 tax year). If your capital gain plus other taxable income fell within this extended basic-rate income tax band, CGT would be payable at 10% instead of 20%, provided the gain wasn’t from residential property.

6. Give shares to charity

To avoid capital gains tax on property, give land, property, or qualifying shares to a charity.

7. Invest in an Enterprise Investment Scheme

Any gains that are made on investments in an EIS (Enterprise Investment Scheme) are free from CGT if held for three or more years.

You might be able to defer a capital gain by investing that gain in an EIS-qualifying company, but only if the investment is made one year before or up to three years after the gain arose. The deferred capital gain will come back into charge once you take your money out of the EIS-qualifying company.

8. Claim gift holdover relief

Gift holdover relief could be available if you give away certain business assets or sell them for less than they are worth to help the buyer. If you’re eligible, you won’t pay CGT when you give away the assets, but the person you give them to might be liable for CGT when they sell them. You must meet several eligibility conditions, so if you’re unsure, speak to a professional adviser.

9. Chattels that escape CGT

Gains on possessions, such as antiques and collectibles called ‘chattels,’ can be tax-free. For example, items with a predictable life of 50 years or fewer, known as ‘wasting assets,’ are CGT-free, provided they were not eligible for business capital allowances. Wasting assets include antique clocks, vintage cars, pleasure boats, and caravans.

For non-wasting chattels, like paintings and jewellery, the CGT position depends on the sale proceeds, with those £6,000 or under usually being exempt.

Conclusion

Managing CGT can seem difficult, but with the right knowledge and strategies, you can effectively reduce your tax bill. By understanding how CGT works and using your allowances, you can ensure you’re paying the right amount. Stay informed, keep accurate records, and take advantage of reliefs and exemptions to minimise your CGT liability.

If you feel it’s too complicated, consider Taxd for professional guidance. We will make sure you’re maximising all your tax reliefs, allowances, and exemptions, explain your options, and advise on the best course of action for your individual circumstances.

FAQs

1. How does UK capital gains tax work?

CGT is a tax charged if you sell, give away, exchange, or otherwise dispose of an asset and make a profit or 'gain.' It is not the amount of money you receive for the asset but the gain you make that is taxed.

2. What is the time limit to avoid capital gains tax?

The 36-month holding period has been removed. The holding period for all listed securities is 12 months. All listed securities with a holding period exceeding 12 months are considered Long-Term. The holding period for all other assets is 24 months.

3. What happens if you don't declare capital gains in the UK?

Not declaring or paying what you owe is an offence that could land you with a fine, possibly leaving you to pay more than you originally owed. However, there are a number of reliefs and conditions which, if you receive the right financial advice, may mean the amount of CGT you pay is lower.