The recent rise in capital gains tax (CGT) rates has sparked considerable discussions about how to effectively manage tax liabilities and identify the best investment strategy. The government increased their capital gains tax rate aiming to generate more money for public services while keeping the UKโs tax structure competitive worldwide. Here is a quick overview of Capital Gains Tax Planning Strategies for 2025 and beyond.
The lower rate of CGT was set to rise from 10% to 18% on October 30, and the higher rate was set to rise from 20% to 24%. Also, the annual exempt amount (AEA) will drop from ยฃ12,300 to ยฃ3,000, a huge drop. This has caused people and businesses to rethink how theyย plan their taxesย now that the rules have changed.
Need a Reminder regarding Capital Gains Tax? We have a comprehensive guide on
- A Complete Understanding of Capital Gains Tax
.
Capital Gains Tax in a Global Context
This move is a big change, but itโs important to look at it in the bigger picture. With CGT rates that are still lower than in many other wealthy countries, the UK is still able to compete on the world stage. In France, Ireland, and Germany, the highest CGT rate for high earners is 34%, 33%, and 25%, respectively. In the US, the highest CGT rate is only 20%. Itโs clear from these numbers that there are still legal ways to handle tax exposure in the UK, but only if you take the right steps.
CGT Allowances and Exemptions
Using allowances is one of the best and most useful ways to lower your CGT. For instance, chattels that can be used for less than 50 years are not taxed at all. In this group are often very expensive things like brand handbags, high-end watches, and rare wines or spirits. The same is true for racehorses, which can be sold for big profits without having to pay CGT.
Things that are sold for less than ยฃ6,000 are also excluded. For instance, if you buy gold, jewellery, or artwork for ยฃ2,000 and then sell it for ยฃ5,500, you donโt have to pay CGT on the difference. Similarly, gains on cars are not taxed, even though this is because most cars lose value over time, and losses canโt be used to offset gains.
Another trick to think about is spread betting. Spread betting wins are not taxed as capital gains because the bets are not the purchase of shares or assets. This way also avoids stamp duty, which makes it useful in some situations, though itโs important to be sure itโs right for you and the risk involved.
Read More From Clear House Blogs
ISA Investments
Individual Saving Accounts are still one of the best ways to invest tax-efficiently. ISA assets are not subject to capital gains tax (CGT) on either income or capital gains up to a limit of ยฃ20,000 per year. Because of this, ISAs are a simple and effective to keep the growth of your investments free of taxes.
Readย What is an ISA โ An Individual Savings Account?ย to understand more
UK government bonds, also known as gilts, are another tax-free way to invest. Gains on gilts are not subject to CGT, which makes them a great choice for buyers who want to be safe. For example, if you buy a Treasury Gilt for ยฃ95.55 and then cash it in for ยฃ100, you have made a gain that is not taxed at all.
Timing is very important for lowering your CGT bill. People can fully utilise the annual exempt amount each year by spreading the sales of assets over several tax years. This can work especially well for people who are dealing with multiple assets.
Transfers between spouses or legal partners are another great chance to plan ahead. These kinds of transfers donโt have to be taxed, so couples can carefully divide their assets. For example, giving assets to a partner in a lower tax bracket or who has unused AEA can make any future gains at much lower tax charges.
Read UK Investment Bonds And Their Taxation In The UKย to understand more about bonds.
BADR and Capital Gains Tax
People who own businesses can get Business Asset Disposal Relief (BADR), which lowers the capital gains tax (CGT) rate when they sell their businesses or shares in a trading company. Entrepreneurs should think about this because meeting the requirements for this relief can greatly lower the tax they have to pay on qualified gains.
Savings can also be found through other tax-advantaged schemes like the Enterprise Investment Scheme (EIS) or the Seed Enterprise Investment Scheme (SEIS). Gains that are re-invested in qualified companies may not be taxed at all or delayed under these programs. They also offer other tax incentives, such as lower income taxes.
- You might want to ensure that the Retrospective BAD Relief is not trapping you.
- Before choosing the Investment relief for your business, you must understandย Which Investment Relief is for you: IR, ER, SEIS or EIS?
- For better understanding, read our complete resources onย Enterprise Investment Scheme EIS Compliance: The Complete Guideย andย A Guide to SEIS โ Seed Enterprise Investment Scheme
- Tax-efficient investments for companies
- How UK Businesses Can Optimize Tax Incentives for Growth
The changes to the CGT bring about new challenges and make it vital to plan ahead. People can successfully reduce the effects of higher CGT rates by taking advantage of available exemptions, investing in tax-efficient vehicles, and carefully timing the sale of their assets.
