Maximizing Your Capital Gains Tax-Free Allowance: Strategies for 2024/25

Understanding the Capital Gains Tax Exempt Amount

Every individual has a tax-free allowance for capital gains, known as the capital gains tax (CGT) annual exempt amount. Although this exemption has been significantly reduced in recent years—standing at just £3,000 for the 2024/25 tax year—it can still provide tax savings of up to £720 if utilized effectively.

The exempt amount is deducted from taxable capital gains after offsetting any allowable losses from the same year but before considering losses brought forward from previous tax years. Suppose you are planning to sell an asset that could generate a chargeable gain. In that case, it may be advantageous to complete the disposal before 5 April 2025 to fully use your 2024/25 allowance rather than dipping into the 2025/26 allocation.

Timing Your Asset Disposal for Maximum Benefit

Before selling an asset, consider the size of the expected gain. If it is less than £3,000 and your full annual exempt amount is available, disposing of it within the 2024/25 tax year ensures you do not waste that year’s exemption. Delaying the sale until after 5 April 2025 may unnecessarily consume part of the 2025/26 exempt amount instead.

Utilizing Spousal and Civil Partner Allowances

Married couples and civil partners each have their annual exempt amount. While it cannot be transferred between partners, assets can be transferred between them at no gain/no loss value. This provides an opportunity to maximize tax efficiency by splitting disposals and leveraging both partners’ exemptions.

Example: John and Julie

John plans to sell shares expected to generate a £2,700 gain. However, he has already used his 2024/25 annual exempt amount and considers waiting until after 5 April 2025 to use his 2025/26 exemption.

Julie, on the other hand, has not made any taxable disposals in 2024/25 and still has her full £3,000 allowance available. If John transfers the shares to Julie before selling, she can dispose of them before 6 April 2025, using her exempt amount. This strategy ensures:

• The 2024/25 exempt amount is not wasted.
• Both partners retain their full 2025/26 exemption for future disposals.

Considering Your Marginal Tax Rate

Beyond using the exempt amount, it is also crucial to consider the tax rate applicable to your gains. Capital gains tax rates are:

• 18% for gains within the basic rate band.
• 24% for gains exceeding the basic rate band.

If a planned disposal will generate a gain exceeding your exemption, evaluate your income tax position. For example, if you are a higher-rate taxpayer in 2024/25 but expect to fall into the basic-rate bracket in 2025/26, delaying the disposal might be more tax-efficient, even if it means forfeiting the 2024/25 exempt amount. Running the numbers is essential to minimize tax liability.

Final Thoughts

Capital gains tax planning requires strategic timing and careful consideration of available exemptions and tax rates. By making informed decisions—such as utilizing exemptions before year-end, leveraging spousal exemptions, and timing disposals based on income levels—you can significantly reduce your tax burden.

Partner Note: TCGA 1992, s. 1K.

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