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Capital Gains Tax After Allowance Reductions: How to Plan Without Overreacting
Hoxton Blog • Capital Gains Tax After Allowance Reductions: How to Plan Without Overreacting
In recent years, the amount you can make in a gain each year before paying Capital Gains Tax (CGT), has reduced significantly.
This tax-free limit, known as the annual exempt amount, used to be £12,300. It fell to £6,000 in the 2023/24 tax year and is now £3,000 for 2024/25 and 2025/26.
It is understandable that this change has caused frustration. A smaller allowance means more people may face a tax bill when they sell investments or property.
However, reduced allowances do not automatically mean you need to sell assets quickly or make major changes to your portfolio. In most cases, CGT planning works best when it is steady and well thought through.
The starting point is understanding where you stand.
Understanding Where Gains Are Building
You only pay CGT when you sell or gift something that has gone up in value. Until you dispose of that asset, the increase in value is simply growth on paper.
That growth can build up quietly over time in places such as:
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Investment accounts held outside ISAs
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Individual shares bought years ago
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Employer share schemes
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Buy-to-let or second properties
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Investments you inherited and have kept
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Crypto currency
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Some ‘chattels’
When the tax-free allowance was higher, it was often possible to sell small amounts each year without creating a tax bill. Now that the allowance is £3,000, even relatively modest sales can result in tax being due.
This does not mean you should rush to sell. It does mean it is sensible to know:
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Which assets have grown the most
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How large those gains are
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Who owns them if you are investing as a couple
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Whether you expect to need to sell in the next few years
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What you would want to do, ignoring the tax consequence
Having a clear picture allows you to plan ahead rather than reacting under pressure later.
Making Use of Spouse and Civil Partner Ownership
If you are married or in a civil partnership and living together, you can usually transfer investments between you without triggering a CGT bill at that point.
This can be helpful to make genuine gifts and then in the future benefit form the fact that each person has their own £3,000 annual allowance. Each person also has their own income level, which can affect the rate of tax paid on gains.
By reviewing who owns what, couples may be able to:
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Use two annual allowances instead of one
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Spread sales across both partners
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Reduce the overall tax paid when assets are eventually sold
This is not about complicated tax planning. It is about keeping your investments structured in a way that gives you more flexibility in the future.
Any changes should also reflect your wider plans, including estate planning and how you want assets to be held within the family.
Using Bed and ISA as a Gradual Tool
A common way to reduce future CGT exposure is through what is often called a Bed and ISA strategy.
In simple terms, this means:
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Selling investments held outside an ISA
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Using the money to buy the same investments inside an ISA, within your annual ISA allowance
Once investments are inside an ISA, future growth and gains are free from CGT.
It is important to remember that selling the investment can still create a tax bill if the gain is above your available allowance. For this reason, Bed and ISA planning often works best when done gradually.
Many investors use their ISA allowance each year to move assets across step by step. Over time, this can reduce the amount of money exposed to CGT without disrupting the overall investment strategy.
The focus should be on strengthening the long-term structure of your portfolio, not simply on using allowances before the end of the tax year.
Thinking Carefully About Timing
When you sell can make a difference.
The £3,000 CGT allowance applies to each tax year. If you are planning to sell a larger holding, spreading sales over more than one tax year may allow you to use more than one year’s allowance. However, you should be aware of anti avoidance legislation which removes any tax benefit of selling ‘connected assets’ over multiple tax years.
The amount of income you have in a given year can also affect the rate of CGT you pay on some assets. Selling in a year when your income is lower, for example after retiring or taking a career break, may result in a different outcome compared with selling during a high-earning year.
Life events such as retirement, moving home, selling a business, or relocating abroad can all change your wider tax picture. Where a sale is already part of your plan, it can be worth thinking about whether the timing supports a better overall result.
That said, investment decisions should not be driven by tax alone. Selling purely to reduce tax, without considering whether it fits your long-term strategy, can lead to unintended consequences.
Looking at CGT as Part of the Bigger Picture
It is easy to focus on CGT in isolation, especially when allowances have been reduced.
However, selling investments affects more than just tax. It can influence:
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Your overall asset mix
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The level of risk in your portfolio
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The income your investments produce
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Your cash flow position
Avoiding all sales out of concern about tax can also create problems. Large gains can build up in one area, leading to an unbalanced portfolio and a bigger potential tax issue later.
The most effective approach is usually a balanced one. This involves:
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Understanding where gains sit
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Improving the structure of your investments gradually
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Using available allowances sensibly
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Making sales when they support your wider goals
CGT planning should support your long-term objectives, not override them.
A Measured Approach in a Changing Environment
The reduction in CGT allowances reflects the current tax environment. It does not mean investors need to overhaul their portfolios overnight.
For many people, the most helpful next step is a review. That review might cover:
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The size of unrealised gains
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Ownership between spouses or civil partners
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The use of ISA allowances over time
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The likely timing of future sales
From there, gradual adjustments can often achieve more than reactive decisions.
If you would like clarity on how the current CGT rules affect your investments, Hoxton Wealth can help you review your position in the context of your wider financial plan. A calm, structured approach can provide reassurance and help ensure decisions are made at the right pace.
Important Disclaimer
This article is for general information only and reflects UK legislation and HMRC guidance at the time of writing. Tax rules can change and individual circumstances vary. Personalised advice should be sought before taking action.
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