The UK government announced a multitude of financial policy changes over the last year.

First came the short-lived Truss regime’s mini-Budget, then Jeremy Hunt’s autumn statement, and most recently the spring Budget. These have cumulatively resulted in widespread alterations to UK tax policy, with significant changes to the Capital Gains Tax (CGT) annual exempt amount among them.

According to government data, the total amount of CGT liability in the 2020/21 tax year was £14.3 billion across 323,000 UK taxpayers — a 42% increase on the previous year.

Read on to learn how the CGT annual exempt amount has changed for the 2023/24 tax year and five smart ways you could reduce your potential CGT liability going forward.

The annual CGT exempt amount was reduced from 6 April 2023 and will go down again from 6 April 2024

You may be liable to pay CGT when you sell (or “dispose of”) certain assets and make a profit.

You may potentially pay CGT on the profits from the sale or disposal of assets such as:

• A business
• Shares and funds (unless you hold them in an ISA or pension)
• Second or buy-to-let properties
• Valuable possessions sold for more than £6,000.

But before your gains become liable for CGT, each individual has an annual exempt amount that allows you to derive a certain amount of tax-free profit first.

However, recent government tax changes have altered the annual exempt amount, reducing the threshold from £12,300 to £6,000 from 6 April 2023. The amount is due to be halved again from 6 April 2024, reducing to £3,000 before being frozen thereafter.

This means that, while you were previously likely to be liable for CGT on gains earned over the £12,300 threshold, it has now dropped to just £6,000 before CGT is applied, and will drop again to £3,000 in the next tax year.

The planned reductions are expected to affect trusts as well as individuals.

The 2023/24 tax year will see CGT rates above the threshold remain the same

Basic-rate taxpayers will continue to pay 10% CGT on profits that exceed the annual exempt amount. This is for all other assets except property (excluding your main residence), where gains attract a CGT rate of 18%.

For those in the higher- and additional-rate brackets, your rate of CGT will be 20% and 28% on assets and property gains that exceed the annual exempt amount respectively.

If you are at risk of being exposed to a potentially hefty CGT bill, you may want to consider steps to plan ahead and reduce your liability.

5 smart ways to help you reduce your CGT liability

1. Remember to utilise your entire annual exempt amount

You may want to ensure you’re taking full advantage of your annual exempt amount, especially in light of reducing thresholds in the next few years. It isn’t possible to carry forward your allowance to a subsequent year, so using all your available exemption could help to mitigate against any liability.

2. Offset any profits by reporting your eligible losses

Remember: CGT is only charged on the profits you make when you sell assets that exceed your annual exempt amount.

In a tax year, any gains and losses made can be offset against each other.

So, if you have any losses you can report, consider making full use of them in order to reduce your registered gains, and consequently lower your CGT liability.

It should also be noted that you can bring forward any unused losses from previous tax years — as long as you report them to HMRC within four years from the end of the tax year in which your asset was originally sold.

3. If you’re married or in a civil partnership, take advantage of your respective benefits

Married or civil partners qualify for a range of tax-related benefits.

In terms of CGT, it is possible to take advantage of any remaining value on your partner’s unused annual exempt amount by transferring over any CGT-liable assets into their name.

This effectively allows you, as a couple, to double your tax-free gains through making use of both of your exemptions.

4. Consider investing surplus funds in a Stocks and Shares ISA

Stocks and Shares ISAs offer many desirable tax benefits including:

• An annual allowance of £20,000 for the 2023/24 tax year, or essentially £40,000 for married couples or civil partners
• CGT exemption for any gains made on investments held within an ISA, without needing to use your annual exempt amount.

These perks can be especially attractive to taxpayers in the higher-/additional-rate Income Tax bands, as you can continue investing while being protected from the higher 20% CGT rate.

5. Review ways to reduce your taxable income levels

As of the 2023/24 tax year, your CGT rate is still dependent on your Income Tax band. So, taking steps to move into a lower Income Tax bracket could help you additionally reduce your potential CGT liability.

One smart way to accomplish this is through maximising the use of your workplace or private pension contributions.

Pension schemes are incredibly tax-efficient savings vehicles that can have both short- and long-term benefits.

You can receive Income Tax relief on contributions up to the Annual Allowance, which has risen to £60,000 (or 100% if earnings are below this threshold) for the 2023/24 tax year.

Making contributions into your pension could benefit your plans in multiple ways, such as:

• Reducing your taxable income, and so moving you into a lower Income Tax band
• Boosting your long-term savings
• Giving you added security and stability in retirement
• Lowering your CGT liability.

A good first step could be to speak to your financial planner and discover the most suitable ways to reduce your CGT liability in your specific circumstances.

Get in touch

If you’re worried about how changing tax thresholds might affect your long-term plans and potential liabilities, it could be worth reaching out to us to help alleviate any concerns.

Please email us at team@brunelcp.com or call 0117 214 0870.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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