CGT exemption: Use it or lose it

Joe and Jane Public: “Hoorah! Our investments have grown!”

Taxman and Taxwoman: “Hoorah! When you sell them, you will have to pay Capital Gains Tax (CGT) on your profits.”

Plan 100: “Aha! But there is a way to use your exemptions in order to reduce your CGT bill.”

Not many people know that

Many people are unaware that you can use your CGT exemptions to boost your return on investment.

The trouble is that your allowances don’t carry forward from year to year; you have to use them or lose them.

So what’s the deal?

These are the key points for tax year 2016/17:

  • Each individual is entitled to gain £11,100 per year before CGT becomes due
  • Above that amount, basic rate taxpayers pay CGT at 10%, and higher rate taxpayers pay CGT at 20%
  • CGT applies to most investment assets, except your principal private residential property or investment assets held within ISAs
  • For other residential property, basic rate taxpayers pay CGT at 18%, and higher rate taxpayers pay CGT at 28%

And what can be done?

When your investments have made a capital gain, you can reduce it by withdrawing your full exemption each year. Here are some of your options:

  • Spend it
  • Reinvest it in an ISA (tax free)
  • Reinvest it in a pension (with tax relief)
  • Let your spouse/civil partner buy it back (so it’s included in their CGT allowance, not yours)

Beware, here be dragons

There are certain investments where you can’t just skim off the amount of your CGT exemption each year:

  • Multi-asset funds: If your investments are held in a fund-of-funds or all-in-one fund
  • Property: When you invest in residential property other than your main residence, you can’t just sell the kitchen to take some profit

Part of your adviser’s job is to manage your allowances so they are used up each year and CGT doesn’t build up into a large bill. That’s what we do for you here at Plan 100.

As you can tell, it’s a complex issue, so please get in touch if you’d like further advice.

P.S. For a little light relief, watch Michael Caine on Parky: ‘Not many people know that’


Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100