Some careful forethought can help minimise your capital gains tax (CGT) bill.
Everyone has an annual CGT exempt amount, which in 2023/24 makes the first £6,000 of gains free of tax. For 2024/25, this amount will be halved to £3,000.
- Most gains above the exempt amount are taxed at 10%, where taxable gains and income are less than the non-Scottish basic rate limit of £37,700 in 2023/24.
- The rate is 20% on gains that exceed this limit. Residential property gains are taxed at 18% and 28%.
You should generally aim to use your annual exempt amount by making disposals before 6 April 2024. If you have already made gains of more than £6,000 in this tax year, you might be able to dispose of loss-making investments to create a tax loss. This could reduce the net gains to the exempt amount.
If your disposals so far this tax year have resulted in a net loss, the decision on whether to dispose of investments to realise gains before 6 April 2024 will depend on the amounts involved. Depending on your level of income, timing your disposals either before or after the end of the tax year could result in more of your gains being taxed at 10% rather than 20% (or 18% instead of 28%).
Transferring assets between married couples or civil partners before disposal might save CGT, particularly where one partner has an unused exempt amount, has not fully used their basic rate tax band or has capital losses available. You should generally leave as much time as possible between the transfer and the disposal.
CGT is normally payable on 31 January after the end of the tax year in which you make the disposal. You could therefore delay a major sale until after 5 April 2024 to give yourself an extra 12 months before you have to pay the tax (but be careful of the impact of the reduction in the exempt amount). However, a payment on account of CGT must be made within 60 days of a residential property disposal (other than of an exempt principal private residence). There is therefore no timing advantage to delaying such a disposal.
Timing your disposals is particularly important if disposals in this tax year have already resulted in a net loss. Depending on the level of your income, making a further disposal either side of the tax year end could save or cost you tax.
A shareholding or another chargeable asset might have lost virtually all value. If so, you can claim the loss against your capital gains without actually disposing of the asset, by making a negligible value claim. You can backdate the loss relief to either of the two tax years before the one in which you make the claim, provided that you owned the asset in the earlier year and it was already of negligible value. The deadline for backdating a claim to 2021/22 is 5 April 2024.