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Strategies to reduce your Capital Gains Tax for 2024/25

Strategies to reduce your Capital Gains Tax for 2024/25
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    The fiscal year 2024/25 brings with it some changes and considerations for investors and property owners alike, especially capital gains tax (CGT). With shifts in tax allowances and evolving strategies to mitigate liability, staying informed is more important than ever.

    This guide looks at strategic measures to reduce CGT liability.

    Our team of tax specialists are here to help you understand and manage your business’s Capital Gains Tax responsibilities. Get in touch with us today.

    Who has to pay capital gains tax?

    Capital gains tax is levied on the profit made from selling assets such as shares, properties not considered your main home, and other investment products. Essentially, if the asset has increased in value from the time of purchase to the time of sale, the profit is subject to CGT.

    However, not everyone is automatically required to pay. If your total gains are under the annual tax-free allowance, or if the asset is disposed of as a gift to a spouse or civil partner, you may not owe CGT. Understanding the nuances of these rules is vital for effectively managing potential tax liabilities.

    Is the capital gains tax allowance changing?

    The landscape of CGT is subject to change, often adjusted in line with fiscal policies to reflect the economic climate and governmental priorities. For the fiscal year 2024/25, there have been planned adjustments to the capital gains tax allowance. These changes aim to balance the tax burden among taxpayers, ensuring that those with higher gains contribute proportionately to the public coffers. In April 2023, the tax-free allowance for CGT was reduced from £12,300 to £6,000. In 2024, this will be reduced further from £6,000 to £3,000.

    How will the reduction in the capital gain tax-free allowance affect residential property gains?

    One significant aspect of the potential changes in CGT allowance concerns residential property gains. The higher rate of CGT is being reduced from 28 % to 24 %, with the lower rate of 18 % staying the same. This means that individuals selling properties other than their main homes may see an increase in their tax liabilities.

    This adjustment aims to ensure a fairer tax landscape, but it also means that property investors and those with second homes need to be particularly mindful of the timing of sales and the structuring of their property portfolios. With the drop, the UK government estimates that around 260,000 taxpayers will be impacted by CGT for the first time.

    How can you reduce your capital gains tax liability?

    Despite the potential challenges posed by changes in CGT allowances, there are several strategies individuals can employ to mitigate their tax liabilities. Understanding and utilising these tactics can make a significant difference in your financial planning.

    Spousal tax allowance transfers

    One of the most straightforward methods to reduce CGT is through spousal tax allowance transfers. Couples can transfer assets between each other to use both individuals’ tax-free allowances, effectively doubling the threshold before CGT applies. This strategy requires careful consideration and planning to ensure that transfers are made efficiently and in compliance with tax laws.

    Utilising tax-efficient investments

    Investing in tax-efficient schemes such as the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS), or through Individual Savings Accounts (ISAs), can offer significant tax advantages. These investments often come with benefits like CGT deferral or exemption, providing a potent way to reduce overall tax liability while supporting growth sectors of the economy.

    Gift assets

    Gifting assets can also serve as a strategic method to manage CGT liabilities. By gifting assets to family members or into a trust, you can potentially spread the gain across multiple taxpayers, utilising more than one individual’s tax-free allowance. However, it’s important to note that gifting assets, especially to non-spouses, can have implications for inheritance tax, so professional advice is advisable.

    Looking for capital gains tax advice? Contact WIS Accountancy

    Navigating the complexities of CGT, especially with the changes for the 2024/25 fiscal year, can be challenging. Whether you’re an individual investor, property owner, or just looking to optimise your financial portfolio, professional advice can be invaluable. WIS Accountancy specialises in providing comprehensive, personalised tax strategies tailored to your unique situation.

    By staying on top of the latest tax laws and utilising a strategic approach to financial management, you can ensure that you’re making the most of your investments and minimising your tax liabilities.

    If you would like further assistance with tax planning or dealing with CGT effectively, please contact WIS Accountancy today to prepare for the future and secure your financial well-being.

    Frequently asked questions about making use of your capital gains tax allowances for 2024/25

    What is changing with capital gains tax in 2024?

    There will be a 4 % reduction in the higher rate of CGT on all residential property gains, dropping from 28 % to 24 % for all disposals on or after April 6, 2024. The tax-free allowance for CGT is also being reduced, from £6,000 to £3,000.

    How can I pay less CGT?

    There are lots of different ways to pay less CGT, starting with using your CGT allowance. You can also use tax incentives such as spousal allowance transfers or make use of tax-efficient investments. You can even gift assets to help lower your CGT bills.

    What home improvements can be offset against CGT?

    Generally speaking, any repairs or maintenance to the property can be used to offset CGT. So if you’re renovating, this could be a great way to keep your CGT bill down. Things like replacing the boiler, rewiring the property or installing new windows or roofing could be used to offset your CGT.

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