Capital Gains Tax Hero
Investor Overview

Capital Gains Tax Explained

A number of venture capital schemes introduced by the UK Government can help to reduce or defer your capital gains tax (CGT) bill. These schemes can be particularly important for individuals who own considerable investment portfolios or additional properties, and are looking to manage their CGT liability.

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Capital Gains Tax Explained

What is capital gains tax and how can I reduce it?

Capital gains tax (CGT) is a levy on any profit you make after selling or 'disposing of' certain assets. As of the 2022/23 tax year, you can earn up to £12,300 in capital gains without having to pay any CGT in the UK (although this threshold is set to decrease significantly in the future). Chargeable assets are those which can be liable to CGT, and include most personal possessions worth more than £6,000, additional property you own (and, in some cases, your main home), some types of investment shares, and business assets.

If you do attract a capital gains tax liability, a number of tax-efficient venture capital schemes introduced by the UK Government could help to reduce your CGT bill. These schemes include the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS), and Social Investment Tax Relief (SITR). Each scheme is designed to encourage investment into early-stage companies and impact-driven businesses by providing investors with a range of generous tax reliefs. These routes offer incentives related to capital gains tax, including deferral relief and reinvestment relief, and understanding the potential of each option to minimise your CGT liability can be crucial to ensure you are investing in the most tax-efficient manner each year.

Please Note:
This article has been prepared as a general guide only and does not constitute tax or legal advice.

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EIS

Enterprise Investment Scheme

The Enterprise Investment Scheme (EIS) can provide investors with a number of different tax reliefs, including capital gains tax exemption on your EIS investment, capital gains tax deferral relief, up to 30% income tax relief, and 100% inheritance tax exemption on your investment if your EIS shares are passed on to your loved ones.

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SEIS

Seed Enterprise Investment Scheme

Designed to support investment into particularly early-stage companies, the Seed Enterprise Investment Scheme (SEIS) can mitigate part of the risk associated with investing in startups by offering generous tax reliefs, notably capital gains tax exemption, CGT reinvestment relief, up to 50% income tax relief, and inheritance tax exemption on your SEIS shares.

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SITR

Social Investment Tax Relief

Social Investment Tax Relief (SITR) offers investors into community interest companies and/or charities a number of tax reliefs on their shares or money they lend to qualifying enterprises. Capital gains tax exemption and CGT deferral relief can be accessed, as well as up to 30% income tax relief.

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What are the capital gains tax rates in the UK? How much is the capital gains tax threshold? When do I need to pay capital gains tax? How can I reduce my capital gains tax bill?

What are the capital gains tax rates in the UK?

As of the 2024/25 tax year, there are four different rates of capital gains tax in the UK. The rate can change in different circumstances depending on two factors: the income tax rate you pay and the type of asset on which your capital gain was made. 

If you're a basic rate income taxpayer (meaning that your annual income is £50,270 or below):

  • The CGT rate due on the disposal of residential property is 18%
  • The CGT rate on the disposal of all other chargeable assets is 18%

If you're a higher or additional rate income taxpayer (meaning that your annual income is £50,271 or above):

  • The CGT rate due on the disposal of residential property is 24%
  • The CGT rate on the disposal of all other chargeable assets is 24%

To calculate how much CGT you might be liable to pay, use a capital gains tax calculator. 

How much is the capital gains tax threshold?

The capital gains tax threshold (also known as the annual exempt amount, or AEA) is the amount you can earn from capital gains in a single tax year without being subject to any CGT.

  • As of the 2019/20 tax year, the AEA was £12,000
  • Between the 2020/21 tax year and the 2022/23 tax year, the AEA was £12,300
  • As of the 2023/24 tax year, the AEA is set to fall to £6,000
  • As of the 2024/25 tax year, the AEA is decreased to £3,000

When do I need to pay capital gains tax?

You may be liable to pay capital gains when you dispose of any chargeable asset - only if you have used up the annual exempt allowance.

Chargeable assets include:

  • Property other than your primary residence
  • Your primary residence in some cases (only if certain criteria are not fulfilled)
  • Individual possessions worth above £6,000 (except from your car)
  • Business assets
  • Cryptocurrency (in some cases)
  • Any type of investment that is not held within a tax-efficient wrapper 

How can I reduce my capital gains tax bill?

Your capital gains tax bill can be reduced via a number of routes, most notably using tax-efficient investment schemes introduced by the UK Government. 

The Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Social Investment Tax Relief (SITR) can each offer investors a number of capital gains tax reliefs. These reliefs include disposal relief, deferral relief and reinvestment relief - meaning that your shares are exempt from CGT when you dispose of them, and an existing bill can be deferred or mitigated, depending on which scheme you utilise.

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The GCV Portfolio

Our Most Recent Tax Efficient Opportunities

Wherever possible, our investment opportunities utilise tax-efficient wrappers. Our range of SEIS-eligible and EIS-eligible investments can provide investors with superior return potential, as well as the ability to benefit from a host of tax reliefs, including capital gains tax exemption, deferral relief and reinvestment relief. Whilst tax relief isn't possible for all companies (as some sectors are excluded), we aim to provide our network of experienced investors with access to a number of high quality, carefully-selected EIS or SEIS investment opportunities each year.

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Free Investor Guide

Capital Gains Tax

Offering an insight into three tax-efficient investment routes available for UK investors to reduce existing and future CGT bills, our investor guide provides a useful overview of the schemes and wrappers that could help you access capital gains tax benefits whilst targeting superior investment returns.

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GCV Capital Gains Tax Brochure

FAQs

Find out more about how tax-efficient investments can reduce your CGT bill

Should you have any further questions regarding capital gains tax, our current investment opportunities, or anything at all relating to what we offer at GCV, feel free to contact us at any point. In the meantime, we have provided a selection of frequently asked questions surrounding capital gains tax below.

  • In the UK, as of the 2022/23 tax year, the capital gains tax free allowance is £12,300. This means that you do not have to pay CGT on the first £12,300 of capital gains you make in one tax year. However, as of April 2023, this threshold is being reduced to £6,000, and as of April 2024, it is being reduced further, to £3,000.

  • You pay a different rate of capital gains tax on residential property than you do on other liable assets. In the UK, as of the 2022/23 tax year, the capital gains tax rates for higher rate income taxpayers are 28% on residential property and 20% on other chargeable assets.

     

    For basic rate income taxpayers, the relevant CGT rates are generally 18% on residential property and 10% on other chargeable assets. To find out more about this,  visit the gov.uk website. 

  • Most personal possessions worth £6,000 or more (except from your car), additional property, your main home (only if you've let it out, used it for business purposes or it is larger than 5,000 square feet), investments (other than CGT-exempt ones, such as ISAs and EIS/SEIS investments) and business assets are classed as chargeable assets.

  • If your total taxable gains exceed the CGT allowance within the tax year, you may need to pay capital gains tax when you sell (or 'dispose of') a chargeable asset.

  • EIS deferral relief enables investors to defer a CGT payment on the sale of any other asset, provided that the gain is invested into EIS-eligible shares.

     

    This feature of the EIS offers investors the potential to organise their CGT liabilities to make the most efficient use of annual tax-free allowances and to better suit their personal circumstances.

  • SEIS reinvestment relief enables investors to reduce the CGT they are due on any chargeable asset, from additional property to listed equities, by up to 50%, should this gain be reinvested into an SEIS-eligible company.

    To receive the full 50% reinvestment relief, the entire sum of the gain must be invested into the SEIS. Should any less be invested, relief will be limited to half of the amount invested.

  • To avoid paying CGT on a second home, a number of steps can be followed. For example, you can:

    • Deduct allowable costs (such as estate agents' and solicitors' fees, and costs linked to improvement work on the home)
    • Offset capital losses brought forwards or incurred in the same year against the gain made on the property
    • Combine your allowance with your spouse or civil partner

If you would like to learn more about capital gains tax and remain up to date with industry news surrounding tax efficient investing, you can explore our insights page below.

Insights
Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong.
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Risk Summary

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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

  • You could lose all the money you invest
  • Most investments are shares in start-up businesses or bonds issued by them. Investors in these shares or bonds often lose 100% of the money they invested, as most start-up businesses fail.
  • Checks on the businesses you are investing in, such as how well they are expected to perform, may not have been carried out by the platform you are investing through. You should do your own research before investing.

You won't get your money back quickly

  • Even if the business you invest in is successful, it will likely take several years to get your money back.
  • The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.
  • Start-up businesses very rarely pay you back through dividends. You should not expect to get your money back this way.
  • Some platforms may give you the opportunity to sell your investment early through a 'secondary market' or 'bulletin board', but there is no guarantee you will find a buyer at the price you are willing to sell.

Don't put all your eggs in one basket

  • Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. A good rule of thumb is not to invest more than 10% of your money in high-risk investments. Learn more here.

The value of your investment can be reduced

  • If your investment is shares, the percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.
  • These new shares could have additional rights that your shares don't have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

You are unlikely to be protected if something goes wrong

  • Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker.
  • Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.

If you are interested in learning more about how to protect yourself, visit the FCA's website here.

For further information about investment-based crowdfunding, visit the crowdfunding section of the FCA's website here.
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Growth Capital Ventures (GCV) is backed by funds managed by Maven Capital Partners, one of the UK’s leading private equity and alternative asset managers.