CGT Tax-Free Allowance Reducing

Individuals with substantial capital gains, property owners and investors, and financial advisors and tax planners. This content applies to anyone who will be affected by the reduction in the Capital Gains Tax (CGT) tax-free allowance from April 2026.

Clarifying the upcoming reduction in the CGT tax-free allowance, the impact it will have on taxpayers, and how to plan effectively to manage CGT liabilities before the reduction takes effect.

With the CGT tax-free allowance set to decrease in 2026, individuals and businesses must plan ahead to minimise their tax exposure. This is particularly important for property owners, investors, and those with substantial assets that could trigger CGT liabilities.

Understanding the CGT Tax-Free Allowance Reduction

In the Autumn Statement, the Chancellor announced that the annual exempt amount applicable to Capital Gains Tax (CGT) is to be more than halved next year. This rate had previously been fixed at £12,300 from April 2021 to April 2026 for individuals, personal representatives, and certain trusts for disabled people.

The exempt amount will now be reduced to £6,000 from April 2023 before being further halved to £3,000 from April 2024.

Any taxpayers that are thinking about the disposal of assets should consider the benefits of crystalising gains before 6 April 2023 to fully utilise the £12,300 allowance for 2022-23.

Married couples and civil partners both qualify for the £12,300 allowance in which case organising joint ownership of these assets before disposal may be beneficial if each individual partner is not fully utilising their 2022-23 annual allowance.

Transfers between spouses and civil partners are exempt from CGT. Making use of the full allowance can, in some circumstances, effectively double the CGT exemption before the end of the current tax year to £24,600.

CGT is normally charged at a simple flat rate of 20% and this applies to most chargeable gains made by individuals. If taxpayers only pay basic rate tax and make a small capital gain, they may only be subject to a reduced rate of 10%. Once the total of taxable income and gains exceed the higher rate threshold, the excess will be subject to 20% CGT.

A higher rate of CGT applies to gains on the disposal of residential property (apart from a principal private residence). The rates are 18% for basic rate taxpayers and 28% for higher rate taxpayers.

Planning for CGT Liabilities Before the Allowance Reduces

To prepare for the reduction in the CGT tax-free allowance, consider the following planning steps:

• Review your assets and determine whether you will trigger CGT with any future disposals.
• Consider making disposals before the reduction in the CGT allowance takes effect, so that more of your gains are exempt from tax.
• Plan tax-efficient disposals by considering the use of exemptions, reliefs, and strategies like gifting assets or using tax-advantaged accounts.
• For property owners, review any potential capital gains from property sales and consider ways to reduce CGT liabilities through reliefs such as Private Residence Relief or Letting Relief.

Effective planning now can reduce the amount of CGT you will owe in the future and help manage the financial impact of the tax-free allowance reduction.

Impact of the Reduction on Property Sales and Investments

The reduction in the CGT tax-free allowance will have significant effects on:

• Property sales: Those selling residential or commercial property may face higher tax bills if the sale is made after the reduction.
• Investment portfolios: Investors selling stocks, shares, or other assets will also be impacted, especially if their gains exceed the reduced CGT allowance.
• Mitigating CGT exposure: Understanding how to use available reliefs and exemptions is crucial for managing these potential tax increases.

Real-world decisions regarding asset sales, investments, and property transactions should factor in the reduced tax-free allowance to make informed, tax-efficient choices.

Risks and Consequences of Not Planning Ahead

If the reduction in the CGT allowance is not properly planned for, the following risks apply:

• Increased CGT liability: More of your capital gains could be subject to tax, leading to higher overall tax bills.
• Missed opportunities: Without planning, you may miss out on making disposals before the reduction, leaving you with a larger tax liability.
• Higher tax burden: Without strategic planning, you could face higher taxes in 2026 and beyond, especially for property owners and investors with substantial gains.

Employers and individuals should be proactive in planning for this change to avoid these risks and manage their tax liabilities more effectively.