Niki Patel, Tax and Trusts Specialist at St. James’s Place comments: “Selling an asset which has gone up in value since you bought it, such as a second property or share portfolio, may require you to pay Capital Gains Tax (CGT) on your profit. CGT is a complicated area of tax-planning which can trip many people up and make selling assets seem fraught with hassle. However, depending on your circumstances and over the long term, it could still work out to be more tax efficient than drawing down from your other assets, such as your pension.

“There are several ways you can reduce this bill, including splitting or giving assets to your spouse or civil partner. By doing this, both of you can use your individual CGT exemption and reduce the amount of tax payable overall. Although such a transfer must be on an outright and unconditional basis.

“Whether giving away assets to your other half or doing something entirely different, it’s worthwhile taking professional advice to ensure your finances are managed as tax-efficiently as possible, by taking advantage of all the available reliefs, allowances and exemptions.”

Ms Patel outlines key things to know about Capital Gains Tax and ways to reduce your bill:

How much CGT will I have to pay?

“This depends on your income and the asset you’re selling. If you pay the higher or additional rate of income tax and you’re selling residential property, you’ll pay 28% CGT on your gains above the annual CGT exemption. If you’re selling a different type of asset, such as investments or high value items, you’ll pay 20% CGT (this doesn't apply to the main family home).

“If you pay basic-rate tax, then CGT is charged at 18% for residential property and 10% if you’re disposing of other assets. However, if your gains tip you into the higher-rate tax threshold, you may pay CGT at both rates. Certain business assets may also be eligible for a special rate of 10%. This is known as Business Asset Disposal Relief.

“It’s important to remember that CGT is only charged on the gain that you’ve made on the asset, not its total value.”

What is the CGT exemption?

“The CGT exemption for 2023/24 is £6,000 per individual but will reduce down to £3,000 in 2024/2025. As far as CGT is concerned, if you are living with a spouse or a civil partner, you each currently have a £6,000 tax-free annual exemption. £6,000 is the maximum profit you can make on the sale of chargeable assets this tax year before you have to pay CGT.

“You get a new CGT exemption each year. However, if you don’t use it in one year, it cannot be carried over to the following year.”

Can giving assets to my spouses or civil partner cut our CGT bill?

A spouse/civil partner could make an outright and unconditional transfer of assets into their partner’s name to make use of their annual exemption on subsequent disposal. This will mean that, between them, they can realise capital gains of £12,000 in 2023/24 and £6,000 in 2024/25.

“This only applies to individuals who are married, in a civil partnership and living together. If you are living together, even in a long-term relationship, but not married or in a civil partnership and you give an asset to your partner, there may be CGT to pay.

Are there other ways to cut my CGT bill?

“You do have several other options:

  • You don’t have to sell investments/assets all at once. If you stagger the sale of say shares over several tax years, then you can make the most of several years’ CGT exemption. For example, you could sell part of a share portfolio on 3 April and the rest on 6 April to take advantage of two years’ CGT exemption.
  • You can also offset any losses you’ve made on other assets. So, if you have a share portfolio or family heirloom that was sold at a loss, for example, you can use that loss to reduce the taxable gain on another asset you’re selling, such as property.
  • Over time, you can shelter more of your assets from tax by investing them in an ISA or pension. You might want to consider a ‘Bed and ISA’ – this is where you sell shares (the Bed part) and buy them back within an ISA wrapper to shelter future capital gains.”