Our Capital Gains Tax allowances have faced some significant drops in recent years. Previously standing at £12,300 per year, it was reduced by more than half in April 2023 to £6,000 — and decreased again in the 2024/25 tax year.
What’s more, Labour made further changes to Capital Gains Tax (CGT) rates in their 2024 Autumn Budget. For disposals (profits from the sale of an asset) made on or after October 30th 2024, the lower rate of Capital Gains Tax will rise from 10% to 18%, and the higher rate from 20% to 24%.
The dividend allowance has also been reduced twice since 2022/23; meaning you might have to pay even more tax than you did in previous years.
These sorts of taxes are faced by many investors, which is why we want to ensure that our customers are kept in the loop with what they mean, and how these changes could impact them (or are already impacting them).
Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.
What is Capital Gains Tax?
In a nutshell, it’s a tax you must pay on any profit you make when selling, gifting, swapping, or transferring ownership of an asset that has increased in value (like a stock or a share). This is often called ‘disposing’ of the asset.
For example, if you buy an investment for £1,000 and sell it for £15,000, you would be making a profit of £14,000. And a percentage of this profit would be taxable.
Bear in mind that this tax is only applicable to investments made outside of your ISA allowance (which sits at £20,000 for the current 2024/25 tax year). Meaning you could save and/or invest up to this amount in an ISA, without paying tax on any gains your money makes. Remember, with investing your capital is at risk and you could get back less than you invested.
October 2024 Capital Gains Tax Budget Changes
As mentioned at the start of this article, Labour’s 2024 Autumn Budget resulted in further changes to Capital Gains Tax. Applicable to profits from disposals after October 30th 2024, these changes were as follows:
For assets other than residential properties and carried interest, the main rates for Capital Gains Tax changed from 10% and 20%, to 18% and 24%, respectively.
For Capital Gains Tax applicable to trustees and personal representatives, the main rate increased from 20% to 24%.
In relation to Business Asset Disposal Relief and Investors’ Relief, Capital Gains Tax increased to 14% for disposals made on or after 6th April 2025. For disposals made on or after 6th April 2026, this 14% will increase to 18%.
For more information about the Autumn Budget announcement, please read our article: Wealthify UK Autumn Budget Reaction.
What do you pay Capital Gains Tax on?
You only pay Capital Gains Tax (CGT) on ‘chargeable assets’ when you choose to sell them on. Some common examples of this would be:
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Any of your personal possessions that’s worth over £6,000 (not including your car);
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Your home — if it’s very large (the grounds are over 5,000sqm), if you’ve let it out, or used it for a type of business;
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Any other property that isn’t your main home;
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Any business assets;
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Any shares — unless they’re in an ISA or a Personal Equity Plan (PEP) which existed before ISAs were introduced.
When 'disposing’ an asset you share with someone else (say the home you own with your partner), you’ll have to pay CGT on your share of the profit.
You may be pleased to hear that you’re only paying Capital Gains Tax on the profit you’ve made by disposing the asset on (not the total sale price) minus any relevant deductions. And you also benefit from a tax-free allowance that resets itself annually.
What is the Capital Gains tax allowance for 2024/25?
This tax-free allowance stands at £3,000 (£1,500 for trusts) for 2024/25.
This is a significant drop from previous years; when it was £6,000 (£3,000 in trusts) for 2023/24, and £12,300 (£6,150 in trusts) for 2022/23.
How is Capital Gains Tax calculated?
When it comes to calculating how much you owe, there are two things to keep in mind:
- Whether the asset is a property or something else;
- And what your income tax band is.
When the time comes to pay tax on the profit you’ve made, there’s a higher percentage to pay for property versus other types of assets:
What is the dividend allowance for 2024/25?
When a business is doing well, they’ll sometimes spread the success by giving back to its shareholders via dividends. So, recent changes to the tax-free dividend allowance may prick up the ears of many investors.
Everyone in the UK has a ‘dividend allowance’ (the amount of dividends you can receive tax-free in a year) and as of 2024/25 that’s £500.
It was previously £2,000 for the 2022/23 tax year. However, on 6th April 2023, the allowance was reduced to £1,000, with plans to reduce it again to £500 this year. You can see the potential impact of this change the table below:
Again, any investments within your annual ISA allowance won’t be subject to dividend tax; if you haven’t maxed this out yet (and have no intention of doing so), then this won’t impact you.
How do I pay Capital Gains Tax?
It’s your individual responsibility to report taxable gains. If this will be the first time you’ve needed to do that, you’ll need to register with HMRC.
Give yourself time to apply and get set up on the system, especially if you’re selling a property, as the first instalment of Capital Gains Tax is 60 days after the sale. (It used to be 22 months!)
You have two options:
- If you’re a UK resident, HMRC has a ‘real time’ service to report your gain. You need to do this by December 31st in the following tax year to when you sold/disposed of the asset.
- Your other option is to declare it through a ‘self-assessment tax return’ (and if you typically submit these then this may be the most time efficient option for you). Similarly, you need to declare it in the following tax year; January 31st if you submit yours online, or October 31st if you prefer paper.
Do I have to declare capital gains below the allowance?
Under £3,000 (or £1,500 in trusts)? You’re fine.
The only condition outside of this rule is if you are registered for Self-Assessment and the total proceeds of your assets are over £50,000. Previously, reporting requirements were triggered if the total proceeds exceeded four times the allowance and the individual was registered for Self-Assessment, but this has now changed.
An ISA or a Pension can reduce your capital gains tax liability
Even though the Capital Gains Tax annual allowance stayed the same during Labour’s 2024 Autumn Budget, the new CGT rate changes highlighted the importance and value of tax-efficient products like ISAs and pensions.
To learn more about how the Autumn Budget could affect investments, please read our article.
ISAs
ISAs (or ‘Individual Savings Accounts’) allow you to give your money an opportunity to grow without needing to pay tax on your gains; saving or investing up to £20,000 of your money per year — with any gains being tax-free.
You could invest this entire amount through a Stocks and Shares ISA*, or you could put some of it in that and the rest in a different type; like a Cash ISA or Innovative Finance ISA. (*Capital is at risk.)
With the recent changes in Capital Gains Tax and the Dividend Allowance, you probably want to ensure you’re making the most of your ISA allowance and not paying tax unnecessarily. After all, it’s there for you to use!
Pensions
The annual pension allowance has increased from £40,000 to £60,000 in recent years. This means you can now pay £60,000 into your pension each year before having to pay tax. However, you won’t receive tax relief on anything over £60,000 or 100% of your salary (whichever is lower). The £60,000 limit includes all payments, including the government top-up and employer contributions – so it is actually £48,000 of your contributions, plus £12,000 tax relief. This could be subject to change again in the future. (Remember, with investment products your capital is at risk.)
In addition to this, the Lifetime Allowance — the limit on how much you could pay into a pension over your lifetime whilst still enjoying the full tax benefits — was scrapped from 6th April 2023. Previously, that limit was £1,073m for most people.
Although these changes may not affect you, it could be useful to ensure you understand them, so you can make the most informed decisions on how to manage and make your money work harder going forward.
Wealthify does not provide advice. If you’re not sure whether investing is right for you, please speak to a financial adviser.
With investing your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.
Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.
References
- Government website - Capital gains tax
- Government website - Capital gains tax rates
- Government website - Capital gains tax: what you pay it on
- Government website - Capital gains tax: what you pay it on, rates and allowances
- Government website - Tax on dividends
- Government website - Tax when you sell your home
