Following the Change to Capital Gains Tax, What Are the Best Ways to Avoid or Reduce This Tax on My Share Portfolio?

The recent changes to Capital Gains Tax (CGT) have left many investors wondering how to minimise their tax liability on share portfolios. With the CGT allowance reduced to just £3,000 for the 2024/25 tax year, it's more important than ever to plan strategically. Here are some effective ways to avoid or reduce CGT on your share portfolio:

1. Use Your Annual CGT Allowance

The simplest way to avoid CGT is to make full use of your annual CGT allowance. For the 2024/25 tax year, this allowance is £3,000. You can sell shares up to this amount each year without incurring any CGT. If you have a significant gain, consider spreading the sale over multiple tax years to stay within the allowance each years.

2. Invest in Tax-Efficient Accounts

Investing in Individual Savings Accounts (ISAs) or Self-Invested Personal Pensions (SIPPs) can help you avoid CGT entirely. Gains made within these accounts are tax-free, making them an excellent option for long-term investments. The ISA allowance for the 2024/25 tax year is £20,000 per person, or £40,000 for married couples and civil partners.

3. Transfer Assets to Your Spouse or Civil Partner

Transfers between spouses or civil partners are exempt from CGT. By transferring shares to your spouse or civil partner, you can effectively double your CGT allowance1. This strategy allows both partners to use their annual CGT exemption, reducing the overall tax liability.

4. Utilize Losses to Offset Gains

If you have any losses from previous years, you can use them to offset gains in the current year. This can significantly reduce your CGT liability. Make sure to report any losses to HMRC within four years from the end of the tax year in which the asset was disposed of.

5. Bed and ISA Strategy

The "bed and ISA" strategy involves selling investments to realise a capital gain and then immediately buying back the same investments inside an ISA. This way, all future gains on the investment will be CGT-free. This tactic is particularly useful for higher and additional-rate taxpayers.

6. Hold Investments for the Long Term

Holding investments for the long term can help you benefit from the CGT exemption on gains made within ISAs or SIPPs. Additionally, the longer you hold an asset, the more likely it is that its value will increase, potentially offsetting any CGT liability.

7. Seek Professional Advice

Given the complexity of CGT rules and the recent changes, it's advisable to seek professional financial or accountancy advice. If this is an area of interest or concern for you then feel free to get in touch by clicking the button below.