Mar-25 Have you used your capital gains tax annual exempt amount?

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 use of the allowance can still generate tax savings of up to £720.

The annual exempt amount applies to reduce the amount of net gains for the year on which capital gains tax is chargeable. The exempt amount is deducted from chargeable gains for the year after allowable losses for the year have been deducted, but before taking account of allowable losses brought forward from previous tax years.

Where a disposal is on the cards which may realise a chargeable gain, if the annual exempt amount for 2024/25 has not been used in full, making the disposal before the end of the 2024/25 tax year rather than after 5 April 2025may be beneficial as it will not eat into the 2025/26 annual exempt amount.

Before making the disposal, the size of the gain should also be taken into account. If the chargeable gain is less than £3,000 and the annual exempt amount is available in full, from a tax perspective, it will be beneficial to make the disposal in the 2024/25 tax year so as not to waste the 2025/26 annual exempt amount.

Spouses and civil partners

Spouses and civil partners each have their own annual exempt amount. Where one partner is planning to make a disposal, they should consider not only their available exempt amount, but also that of their spouse or civil partner. While spouses and civil partners cannot transfer their annual exempt amount to their partner, any transfers of assets between them are at a value that gives rise to neither a gain nor a loss. This means that by making a transfer of an asset or a share of an asset prior to disposal it is possible to utilise both partners’ annual exempt amounts.

Example

John and Julie are married. John wants to dispose of some shares which he expects to realise a gain of £2,700. As John has already used up his annual exempt amount for 2024/25, he is planning to wait until after 5 April 2025 to make the disposal, so that he can set his 2025/26 annual exempt amount against the gain.

However, Julie has not made any chargeable disposals in 2024/25 and her annual exempt amount for 2024/25 remains available. If John transfers the shares to Julie, taking advantage of the no gain/no loss rules, and she disposes of them before 6 April 2025, the gain will be sheltered by her 2024/25 annual exempt amount. By proceeding in this manner, Julie’s annual exempt amount for 2024/25 is not wasted, and both John and Julie have their annual exempt amounts for 2025/26 available to shelter disposals in that year.

Consider your marginal rate of tax

Chargeable gains are taxed at 18% where income and gains do not exceed the basic rate band and at 24% once the basic rate band has been used up. If the gain on a planned disposal will exceed the available annual exempt amount, it is necessary to take into consideration the rate at which the remainder of the gain will be taxed. Depending on the size of the gain, if the taxpayer is a higher rate taxpayer in 2024/25 but will be a basic rate taxpayer in 2025/26, it may be better to wait until 2025/26 to make the disposal, even if the annual exempt amount for 2024/25 is wasted. The aim is to minimise the tax payable on the gain, and there is no substitute for doing the sums.