2024/25 Capital Gains Tax Explained – Your Financial Adviser Can Help You Save

Tuesday 25 February, 2025

As an individual or business owner, navigating the intricacies of Capital Gains Tax (CGT) can be challenging, especially with changing rules and thresholds. While this article provides a comprehensive overview, consulting a financial adviser can help you understand how these changes affect your unique situation and explore strategies to minimise your tax burden effectively.

The Importance of Professional Guidance in Managing CGT

Taxation is complex, and a professional financial adviser can tailor a strategy to help you make the most of available allowances and exemptions. Barnet Financial Adviser, Simon Prestcote, explains how understanding the tax implications of your investments is crucial for effective financial planning and wealth management. By staying informed about tax rules, keeping accurate records, and seeking professional advice when necessary, you can navigate the complexities of taxation with confidence. Taking proactive steps today will help you build and preserve wealth while minimising unexpected tax liabilities in the future.

As the end of the 2024/2025 tax year approaches, Simon reminds us that, where applicable, you will receive a tax statement, and a capital gains tax (CGT) report based on the information held by your provider. This annual process ensures that you have the necessary documentation to review your tax obligations and make accurate declarations.

The income tax statement should be issued by the start of July, providing a detailed summary of your taxable income for the year, and your capital gains tax report will follow shortly after. These documents are crucial for completing your tax return and understanding your financial position.

Investing can help you build wealth over time, but if you make a profit, you may need to pay tax on those gains. Understanding the rules and thresholds will help you manage your investments more effectively. This article explains when you’ll owe tax to HMRC and how to navigate the system.

Capital Gains Tax (CGT)

You’ll pay CGT on profits from selling assets, such as stocks, shares, investment property, or items like antiques that have increased in value over time. This tax ensures that a portion of the profit you make on these assets is returned to the public purse.

For the tax year 2024/2025, everyone gets a £3,000 CGT allowance. This means you can make up to £3,000 in profit from investments before paying CGT, providing some relief for smaller gains.

I If your gains exceed this allowance, the tax rate you pay depends on when the gain was made and your income level:

For gains made before October 2024:

10% for basic rate taxpayers
20% for higher rate taxpayers

For gains made after October 2024:

18% for basic rate taxpayers
24% for higher rate taxpayers

Some sales are exempt from CGT, such as selling your main home or personal belongings worth up to £6,000. Additionally, if sold, your main home may qualify for up to 100% private residence relief.

Due to the mid-tax year budget changes, CGT calculations have become more complex, particularly when gains span both tax rate periods. Speaking with a financial adviser can help ensure you fully understand how these changes impact your situation and optimise your tax strategy accordingly.

Do I Need to Pay Tax on Investments?

Tax treatment can differ depending on different investment vehicles. For example, if you have a general investment account (GIA), you’ll pay tax on any profits when you sell your investments, receive interest, and receive dividends. The amount of tax you owe depends on your profits, the type of investments you hold, and your personal tax situation. Proper planning and record-keeping can help you stay on top of your obligations and avoid unexpected liabilities.

Business Asset Disposal Relief (BADR)

Business Asset Disposal Relief (formerly known as Entrepreneurs' Relief) allows eligible individuals to pay a reduced rate of CGT when selling qualifying business assets. For the 2024/2025 tax year, the rate of CGT under BADR is 10% on gains up to the lifetime limit of £1 million. This offers a significant tax-saving opportunity for business owners who meet the criteria.

However, as of 6 April 2025, qualifying gains eligible for Business Asset Disposal Relief (BADR) will be taxed at a rate of 14%. From 6 April 2026, this rate will increase to 18%. This change aligns BADR relief with the revised lower main rate of Capital Gains Tax (CGT), which increased from 10% to 18% following the recent Budget.

To qualify, you must meet specific conditions, such as holding the business for at least two years and actively participating in its operations.

For comprehensive information on Business Asset Disposal Relief (BADR), including upcoming changes to Capital Gains Tax rates effective from 6 April 2025, you can refer to Business Asset Disposal Relief: Eligibility.

Tax on Dividends

Some shares pay regular cash dividends, which can provide a steady income stream. For the 2024/2025 tax year, the dividend allowance is £500. If your dividends exceed this amount, the tax you pay depends on your income level:

8.75% for basic rate taxpayers
33.75% for higher rate taxpayers
39.35% for additional rate taxpayers

A financial adviser can help you navigate these rates and thresholds, ensuring your investment strategy is optimised to maximise returns while minimising tax exposure.

Interest Income

If your GIA holds cash or bonds, the interest you earn may also be taxable. You have a Personal Savings Allowance (PSA) based on your tax rate, which provides some relief for smaller amounts of interest income:

£1,000 for basic rate taxpayers
£500 for higher rate taxpayers
No PSA for additional rate taxpayers

After your PSA is used, interest income is taxed after earned income, such as your salary, at the following rates:

0% on the first £12,570 – Personal Allowance
20% on £12,571 to £50,270 – Basic Rate (The starting rate band (SRB) for savings income (up to £5,000) may also be available where general taxable income (i.e. that in excess of the personal allowance) is £5,000 or less.)
40% on £50,271 to £125,140 – Higher Rate
45% on income over £125,140 – Additional Rate

Understanding these thresholds will help you assess your total tax liability and plan accordingly, and a professional financial adviser can help clarify how these rules apply to your specific situation.

Letting HMRC Know About Tax on Investments

If you have investment income, you may need to register for Self-Assessment to report your earnings accurately. This process can be done online through the HMRC website and involves providing detailed information about your investment income, dividends, savings interest, and capital gains for the tax year.

Once you have submitted your return, the system will calculate the tax you owe automatically, making it easier to understand your obligations. Be mindful that the deadline to submit your tax return for the 2024/2025 tax year is 31st January 2026. However, proactive planning for the 2025/2026 tax year and beyond can help reduce liabilities and maximise your tax-saving opportunities.

It is essential to pay any tax owed by this date to avoid fines or interest charges, which can add up quickly if overlooked. If you find it challenging to calculate your tax, consulting an accountant can provide valuable assistance and peace of mind.

Speak to a Professional Financial Adviser

Taxation can be complex, with numerous rules, allowances, and exemptions that may apply differently depending on your personal situation. As we approach the 2025/2026 tax year, early planning is essential. A financial adviser can help you adjust to upcoming changes and optimise your tax position for the future.

A professional financial adviser can help you explore legal financial vehicles and methods to minimise tax. These strategies allow you to take full advantage of available tax breaks while ensuring compliance with HMRC regulations. By tailoring a strategy to your specific circumstances, they can help you make the most of your allowances and exemptions while helping to protect your long-term financial goals.

Simon Prestcote, Independent Financial Adviser (IFA), Barnet, North London said:

“Understanding the tax implications of your investments is crucial for effective financial planning and wealth management. By staying informed about tax rules, keeping accurate records, and seeking professional advice, you can not only navigate the complexities of the 2024/2025 tax year but also ensure you’re well-prepared for any upcoming changes, particularly for 2025/2026 and beyond. Taking proactive steps today will help you build and preserve wealth while minimising unexpected tax liabilities in the future”.

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