Capital Gains Tax — Allowances & Planning
Understand CGT rates, the £3,000 Annual Exempt Amount, and practical strategies like bed-and-ISA, loss harvesting, and spousal transfers.
Capital Gains Tax — Allowances & Planning
Capital Gains Tax (CGT) is charged on the profit you make when you sell (or "dispose of") an asset — not the total sale price. A disposal includes selling, gifting, swapping, or receiving insurance proceeds for an asset.
Annual Exempt Amount (AEA)
Every individual gets a tax-free CGT allowance each tax year. For 2024-25, the Annual Exempt Amount is:
| Amount | |
|---|---|
| Individuals | £3,000 |
| Trusts | £1,500 |
This is significantly lower than the £6,000 allowance in 2023-24, so planning has become more important.
CGT Rates (2024-25)
The rate you pay depends on the type of asset and your Income Tax band:
| Asset type | Basic-rate taxpayer | Higher/additional-rate taxpayer |
|---|---|---|
| Most assets (shares, crypto, collectibles) | 10% | 20% |
| Residential property (not your main home) | 18% | 24% |
| Carried interest | 18% | 28% |
Your total taxable income plus your gains determine which band applies. If adding the gain pushes you from basic into higher rate, the gain is split across both rates.
Worked Example — Share Disposal
Alice bought 500 shares at £4 each (cost: £2,000) and sells them for £7 each (proceeds: £3,500).
| Step | Calculation |
|---|---|
| Gain before AEA | £3,500 − £2,000 = £1,500 |
| Less AEA | £1,500 − £3,000 = £0 |
| CGT due | £0 |
Because her gain is within the £3,000 AEA, Alice pays nothing. If her gain had been £8,000, she would pay CGT on £5,000.
Five Key Planning Strategies
1. Use your AEA every year. It cannot be carried forward. If you hold assets with unrealised gains, consider selling enough each year to crystallise up to £3,000 of gains tax-free.
2. Bed and ISA. Sell shares in a taxable account, then immediately repurchase the same shares inside a Stocks & Shares ISA. This crystallises the gain (hopefully within your AEA) and shelters all future growth from tax.
3. Harvest losses. If you hold investments sitting at a loss, selling them creates an allowable loss that can be set against gains in the same tax year — or carried forward indefinitely. Losses must be reported to HMRC within four years of the end of the tax year in which they arise.
4. Transfer to your spouse. Transfers between spouses and civil partners are treated as taking place at no gain, no loss. This effectively doubles your AEA to £6,000 per year as a couple, and can shift gains to the partner in the lower tax band.
5. Hold assets long-term inside tax wrappers. Any gains inside an ISA, pension, or VCT are completely free of CGT. The less you hold in a taxable general investment account, the less CGT planning you need.
Reporting Requirements
You must report CGT to HMRC and pay the tax if your total proceeds from disposals exceed 4× the AEA (£12,000 in 2024-25) — even if your actual gain is below the AEA. For UK residential property, you must report and pay within 60 days of completion via the HMRC CGT on UK property service.
This is educational content, not financial advice. Tax rules change — always verify with HMRC or a qualified adviser before acting.
Explain Like I'm 5
Imagine you bought a toy for £2 and sold it for £5 — you made £3 profit. The government says you can make up to £3,000 of profit each year without paying any tax on it. If you give the toy to your mum or dad first, they can sell it and use their £3,000 too. And if you keep your toys in a special box called an ISA, you never have to share any profit at all!
Key Takeaways
- The 2024-25 CGT Annual Exempt Amount is just £3,000 per person — use it or lose it.
- CGT rates are 10%/20% for most assets and 18%/24% for residential property.
- Bed-and-ISA lets you crystallise gains within your AEA then shelter future growth.
- Spousal transfers are CGT-free and effectively double your allowance to £6,000.
- Allowable losses can be carried forward indefinitely — but must be reported within four years.
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