Watch out for the CGT trap

HMRC's take from Capital Gains Tax (CGT) has risen significantly recently as the tax authority has cast its net wider, along with cuts to the tax-free allowance and an increase in the rates payable on qualifying gains. Here we take a look at the CGT trap and examine some of the strategies for reducing liability to the tax.

CGT surge

The amount of CGT being collected by HMRC has surged over the past year, according to official figures.

HMRC's data shows that in the final quarter of 2024, over £800 million was paid in CGT, up 60% in a year.

It also shows a total of £10.3 billion was received from CGT in January (when the tax take is higher due to the self assessment deadline), taking the year-to-date total to £12 billion. Industry experts said the surge in CGT receipts was probably driven by lots of people triggering gains ahead of the Autumn Budget.

Rates and allowances

The tax-free allowance has fallen significantly in recent years. As recently as the 2022/23 tax year the annual exemption was £12,300 but this was cut to £6,000 the following year and is now just £3,000.

It means extra people face paying more of this tax, and some people are being exposed to it for the first time.

Meanwhile, the Autumn Budget increased the rate on stocks and shares and other non-property assets from 20% to 24% for higher rate taxpayers and from 10% to 18% for basic rate taxpayers.

No CGT giveaways

Those who give away assets, to anyone other than a spouse or partner, may be surprised to find that the gift will be assessed for CGT purposes and there will be a tax liability if that gain is over £3,000.

If given to a spouse or civil partner, there's no tax on the transfer, but when they come to sell it, their gain will be calculated from the date it was acquired.

Similarly, those who try to get around CGT by selling something for less than it's worth – such as a second property – will find that the tax is due on the full market value. 

Wider net

Recent years have seen HMRC cast a wider net for assets that fall within the CGT regime. The rise in the value of cryptoassets means that selling them, swapping them for another type of cryptoasset or even spending them can incur a CGT bill.

Good recordkeeping about when crypto was acquired and the gain in value since then is therefore vital.

In addition, CGT may now be payable on internet sites such as eBay where something valued at over £6,000 makes a gain of more than £3,000. This includes things like jewellery, paintings and antiques.

Reporting and payment of CGT

For non-residential property disposals, these can be reported on the self assessment tax return or via a 'real-time return' if you are not otherwise required to submit a tax return. Payment of CGT is due by 31 January following the tax year of the disposal.

CGT on residential property disposals must be reported and a 'best estimate' payment of account made within 60 days of completion of sale.

CGT reliefs

Business Asset Disposal Relief (BADR) may be available on the first £1 million gains from the disposal of certain businesses during an individual's lifetime. Qualifying gains are taxed at a 14% rate of tax.

An individual's or married couple's only or main residence is generally exempt from CGT under a relief known as Private Residence Relief (PRR).

There must also be clear evidence of occupation as a main residence and not just ownership.

Other reliefs

Other reliefs continue to be available, including:

• Business asset rollover relief, which enables the gain on a business asset to be deferred until a point in the future.
• Business asset gift relief, which allows the gain on business assets that are given away to be held over until the assets are disposed of by the donee.
• Any unused allowable losses from previous years, which can be brought forward in order to reduce any gains.