Have you used your capital gains tax annual exempt amount?

Individuals have a separate tax-free allowance for capital gains tax purposes – the capital gains tax annual exempt amount. Although it has been reduced considerably in recent years and is only £3,000 for 2024/25, making the most of this allowance remains an important part of tax planning. If you’ve made any gains during the tax year – whether from selling investments, property, or business assets – it’s worth understanding how to use this allowance effectively and ensure you’re not paying more tax than necessary.

What is the Capital Gains Tax Annual Exempt Amount?

The capital gains tax (CGT) annual exempt amount is the amount of capital gains you can make each tax year without paying any tax on them. For the 2024/25 tax year, this stands at £3,000. This allowance resets on 6 April each year and cannot be carried forward to future years, so if you don’t use it, you lose it.

It’s important to note that this allowance is separate from your personal income tax allowance. You could use your full £12,570 personal allowance against income and your full £3,000 CGT exemption in the same year – they don’t overlap.

Who Needs to Worry About This?

If you’re selling shares, investment properties, second homes, or business assets, you’re potentially triggering a capital gain. Even if the gain falls within your £3,000 exempt amount, you still need to report it to HMRC if you’re required to complete a Self Assessment tax return.

The type of gain and who owns the asset can affect your tax position. Higher and additional rate taxpayers pay 20% on most capital gains, whilst basic rate taxpayers pay 10% (though some gains are taxed differently – for example, residential property gains are taxed at 28% or 20% depending on your income tax band). Using your annual exempt amount means avoiding these rates entirely on up to £3,000 of gains.

Making the Most of Your Allowance

There are several practical ways to use your CGT annual exempt amount effectively:

Selling underperforming investments: If you have investments or shares that have lost value alongside others that have gained, you might consider realising some losses. These losses can be offset against your gains, and once you’ve reduced your net gain to nil, you’ve preserved your annual exempt amount for future use.

Timing asset disposals: If you’re planning to sell an asset and realise a significant gain, consider whether it might be advantageous to do so in a tax year when you have unused relief or losses available. Similarly, if you’re expecting a large gain, you might crystallise smaller gains in separate tax years to spread the use of your exemptions.

Using the allowance for both spouses: Each individual has their own £3,000 allowance. Married couples and civil partners can potentially each use their exemption, effectively sheltering £6,000 of gains between them from tax.

Gift or transfer assets before sale: In some circumstances, transferring an asset to a spouse before it’s sold might allow you to split the gain between two annual exemptions – though this must be done carefully and before the disposal occurs.

Reporting Requirements

Even if your gains fall within the exempt amount, you must still declare them on your Self Assessment tax return if you’re required to file one. HMRC needs to know about the disposal and the gain, even if no tax is due. Failing to report capital gains can result in penalties.

If you’re not usually required to file a Self Assessment return but have had capital gains, you may need to register with HMRC. The thresholds for needing to file are income-based, but capital gains can trigger a requirement to notify HMRC.

Don’t Leave Money on the Table

With the annual exempt amount as low as it is, using it strategically has become even more important. Whether through deliberate tax planning or simply ensuring you understand how your disposals are taxed, making the most of your £3,000 allowance could save you hundreds of pounds in tax each year.

If you’re unsure whether your gains are correctly calculated, whether you’ve reported everything you need to, or simply want to explore opportunities to minimise your tax bill, it’s worth having a conversation with your accountant now – particularly if you’re approaching year-end with planned disposals in mind.

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