Understanding the Capital Gains Allowance in the UK
Capital gains tax (CGT) is a tax on the profit made when you sell or ‘dispose of’ an asset that has increased in value. It’s the gain you make that’s taxed, not the total amount of money you receive. The capital gains allowance, also known as the Annual Exempt Amount, is a tax-free allowance for gains made on the disposal of assets. In this blog post, we will discuss in detail how much the capital gains allowance is in the UK for the tax year 2024-2025.
The Capital Gains Allowance for 2024-2025
According to the official HMRC sources, the capital gains allowance for the tax year 2024-2025 is £12,500. This means that you can make gains of up to £12,500 in one tax year, without having to pay any CGT.
It’s important to note that this allowance cannot be carried forward to the next tax year if it hasn’t been used, nor can it be transferred to someone else.
How Capital Gains Tax is Calculated
Deduct the Annual Exempt Amount from your total taxable gains. The remaining amount is then charged at a specific rate, depending on your overall taxable income.
Capital Gains Tax Rates
The capital gains tax rates for the tax year 2024-2025 are:
- 10% for basic rate taxpayers
- 20% for higher rate taxpayers
However, these rates can increase to 18% and 28% for basic rate and higher rate taxpayers respectively if the assets being disposed of are residential properties (except for your main home) or carried interest.
Reducing Your Capital Gains Tax Bill
There are several ways you can reduce your capital gains tax bill:
- Use your tax-free allowance: Every individual in the UK has an annual tax-free allowance for capital gains. This is currently set at £12,500 for the tax year 2024-2025.
- Offset losses: If you have made a capital loss in a tax year, you can offset this against your capital gains to reduce your CGT liability.
- Transfer assets to a spouse or civil partner: Transfers of assets between spouses or civil partners are not subject to CGT. This means you could potentially use both your tax-free allowances.
Conclusion
The capital gains allowance is a significant benefit to taxpayers, allowing them to realise gains on assets up to a certain amount without incurring a tax liability. It’s crucial to keep abreast of the latest tax allowances and rates to ensure you’re not paying more tax than necessary. For more detailed information on the capital gains allowance or other tax matters, consult the HMRC website or seek professional advice.
