- Capital gains tax (CGT) receipts hit a new record in the 2024/25 tax year, as investors paid £24.2 billion in CGT – up 89% in a year (source: Capital Gains Tax statistics - GOV.UK)
- The number of people paying CGT also shot up by 45% to an all-time high of 584,000
- The annual CGT allowance was cut from £6,000 to £3,000 in 2024/25, catching a greater number of smaller investors
- This is the first year that gains from crypto were recorded separately – 17,600 people reported gains of £1.38 billion
- Men reported 93% of all gains on crypto, and 54% of taxpayers with crypto gains were aged 25 to 44
- Five steps to manage your CGT bill
Sarah Coles, head of personal finance at AJ Bell, comments:
“A perfect storm of rate hikes, allowance cuts and endless speculation sparked an eye-watering spike in capital gains tax in 2024/25. CGT has gone from being a tax relatively few people had to worry about to something more mainstream, with the number of people paying CGT more than doubling in five years.
“Speculation ahead of the Budget in Autumn 2024 worried investors into realising gains ahead of the speech. Many of them will have sold assets they would otherwise have realised gradually – taking advantage of the annual allowance – because they were so concerned about potential changes.
“The Budget speech then brought miserable news for investors. For those making investment gains (excluding property), the rate rose from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers overnight. Former chancellor Rachel Reeves also announced that the rate on business assets would start rising from April 2025 – with the hiking of the rate on sales qualifying for business asset disposal relief. It forced some business owners to fast-track a sale: during the year, 8% of CGT came from sales that qualified for this rate.
“Some of these capital gains tax tweaks have hit those on average incomes harder. Basic rate taxpayers saw a much bigger leap in their CGT rate than higher rate taxpayers. The shrinking of the annual allowance has also had a disproportionate effect on smaller investors, because the allowance used to cover a much larger percentage of their gains.
“The cuts in the annual allowance in April 2023 and April 2024 have also meant CGT pain has been spread further, hitting some smaller investors with bills for the first time. Up to 163,000 taxpayers were brought into the scope of CGT by the two cuts – from £12,300 to £6,000 and then £3,000. These taxpayers paid £108 million in CGT.
Crypto gains highlight age and gender gap
“This was the first year that gains from crypto were reported separately – revealing 17,600 people made gains of £1.38 billion. They were far more likely to be men than those reporting other kinds of gains – at 87% compared to 56% overall. They’re also much younger, because 54% of taxpayers with crypto gains were aged between 25 and 44 – compared to 17% of CGT as a whole.
“While crypto has generated some impressive tax bills, there remains a risk that some of these younger crypto fans aren’t aware that they have to pay capital gains tax on these assets when they sell up or when they swap them for other currencies. It means there could be nasty capital gains tax surprises lying in wait for unsuspecting investors when the taxman catches up with them.
Talk of a CGT hike
“As we head towards the Budget, the IPPR has become the latest to call for an equalisation of the capital gains tax rate and the income tax rate. However, there are some serious issues with this approach.
“Such a massive hike would almost double the rate for higher and additional rate taxpayers overnight, which makes investing outside ISAs and pensions far less attractive. The government is keen to encourage more people in the UK to invest, so steps that make it less attractive seem counter-intuitive.
“There’s also a risk it drives poor investment choices, because people are driven by tax worries. It could encourage many to hoard assets until their income drops or even until death, which could lead them to hang onto investments that don’t suit their needs.
Five ways to save capital gains tax
“Regardless of whether there’s any mention of CGT in the Budget, there are some useful ways to ensure you don’t pay more capital gains tax than you need to:
- Use a Stocks and Shares ISA. Stocks and Shares ISAs protect investments from both capital gains tax and dividend tax. This makes a difference not only when you withdraw money, but when you buy and sell to rebalance your portfolio as you go along. If you have investments outside an ISA and the available allowance, you can move them inside using the Bed and ISA process.
- Consider pensions. If you’re happy to tie the investments up until the age of 55 (rising to 57 in 2028) growth is tax-free – plus you get income tax relief on contributions into the bargain.
- Think about the timing. You can often choose when to realise a gain, so you can take advantage of your annual allowance of £3,000 each year.
- Use your losses. If you have made allowable losses, include them on your tax return, because they’ll be offset against gains in the same tax year. Once the losses have reduced your gain to the annual allowance, if you have any losses left over, you can carry them forward to a future tax year.
- Plan as a couple. Married people and civil partners can transfer assets without triggering a capital gains tax bill – although when they eventually sell, the gain is calculated from when it was first bought rather from when they received the gift. They can then realise £3,000 of tax-free gains each year and make the most of their ISA allowance – to protect the investments from CGT in future too.”
