Capital gains tax year end planning

Capital gains tax (CGT) can catch many UK taxpayers and business owners off guard, but with proper year-end planning, you can minimise your liability and keep more of your profits. As we approach the end of the tax year, now is the ideal time to review any gains you’ve realised—or plan to realise—before 5 April 2024. Whether you’ve sold property, shares, or business assets, understanding the basics of CGT and taking action today could save you hundreds or thousands of pounds.

Understanding Your CGT Allowance

The most important thing to know is your annual exemption threshold. For the 2023/24 tax year, the CGT annual exemption stands at £3,000 per individual. This means you can make gains up to this amount without paying any CGT at all. If you’re married or in a civil partnership, your spouse has their own separate allowance—so combined, you could shelter £6,000 of gains if you’re strategic about asset ownership and timing.

Many people forget about this allowance entirely and end up overpaying. If you’ve realised gains below £3,000, you don’t need to declare them to HMRC (though it’s good practice to keep records). Above this threshold, you’ll pay CGT at either 10% or 20%, depending on your income tax band and the type of asset.

Asset Types and Different Rates

Not all gains are taxed equally. This is crucial to understand. Basic rate taxpayers (those with taxable income below £50,270 in 2023/24) pay CGT at 10% on most assets, including shares and second properties. However, gains on residential property (which includes buy-to-let properties) are taxed at 20% for higher rate taxpayers and 20% outright regardless of your income band if it’s not your main residence.

Business assets—such as goodwill or plant and equipment—may qualify for Entrepreneurs’ Relief (now called Business Asset Disposal Relief), which allows qualifying gains to be taxed at just 10%. The cumulative limit for this relief is £1 million per lifetime, so if you’re planning to sell a business stake or significant business assets, this could be substantial. However, you must meet strict conditions: the asset must have been owned for at least two of the past five years, and it must be a genuine business asset used in a trading business.

Tax-Loss Harvesting and Timing Strategies

One of the most effective CGT planning tools is tax-loss harvesting. If you’ve sold assets at a loss—whether shares in a failed venture or an underperforming investment—you can offset these losses against gains made elsewhere in the same tax year. You must report both gains and losses through Self Assessment, but losses can significantly reduce your overall CGT bill.

Better yet, if your losses exceed your gains, you can carry forward unused losses indefinitely to offset future years’ gains. However, you cannot carry back losses to previous years, so timing matters. If you’re sitting on losses and anticipate gains before 5 April, realising those losses now could be a smart move.

Another strategy to consider: if possible, spread gains across two tax years by deferring the sale of an asset by a few weeks or months. This allows you to use both your current year and next year’s annual exemptions, potentially sheltering up to £6,000 instead of £3,000.

Reporting and Self Assessment

Once your tax year ends on 5 April, you have until 31 January the following year to file your Self Assessment tax return and declare any CGT. HMRC expects to see details of each chargeable gain: the asset sold, the date of sale, the cost basis, the sale proceeds, and the net gain after indexation allowance (where applicable).

If you fail to declare CGT you owe, penalties can mount quickly. Late payment also incurs interest. For business owners or anyone with complex asset disposals, it’s worth getting professional help to ensure everything is reported correctly.

Getting Professional Advice

CGT planning can be intricate, especially if you’ve made multiple disposals, own business assets, or have circumstances that might qualify you for relief. What works for one situation may not suit another. Variables like your income level, your spouse’s tax position, and the nature of your assets all influence the optimal strategy.

For tailored advice, contact Severn Accounting—we’re here to help.