Global Wealth Investor

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Tag: CGT

  • UK Capital Gains Tax-Free Alllowance 2025/26

    Heads Up, Investors: The UK Capital Gains Tax-Free Allowance Has Been Slashed Again

    The government has once again tightened the rules on investment profits. For the 2025/26 tax year, the UK Capital Gains Tax (CGT) allowance has been cut in half.

    Here’s what you need to know to stay ahead.

    The New Capital Gains Allowance: It’s Just £3,000

    The Capital Gains Tax allowance – officially known as the Annual Exempt Amount – is the amount of profit you can make from selling assets in a tax year before you have to pay any tax.

    For the 2025/26 tax year (6 April 2025 to 5 April 2026), this allowance will be:

    • £3,000 for individuals
    • £1,500 for most trusts

    This is a sharp drop from the £6,000 allowance in 2023/24 and a world away from the £12,300 it was just a few years ago. This trend means that even small investment gains that were previously tax-free might now result in a tax bill. 📉

    What Happens if Your Profits Exceed the Allowance?

    If your total capital gains in the tax year are more than £3,000, you’ll pay tax on the excess amount. The rate you pay depends on two things: your Income Tax band and the type of asset you’ve sold.

    The CGT rates for 2025/26 are:

    • On most assets (like shares or funds held outside an ISA):
      • 10% if you’re a basic rate taxpayer
      • 20% if you’re a higher or additional rate taxpayer
    • On residential property (that isn’t your main home):
      • 18% if you’re a basic rate taxpayer
      • 28% if you’re a higher or additional rate taxpayer

    Important: Your capital gains are added on top of your regular income. This means a large gain could push you into a higher tax bracket, and you’ll pay the higher rate of CGT on the portion of the gain that falls into that new bracket.

    How to Protect Your Gains 🛡️

    With the allowance now so low, smart planning is more crucial than ever. Here are a few key strategies to consider:

    • Maximise Your ISA: This is your best defence! Any gains you make on investments held within a Stocks & Shares ISA are completely free from Capital Gains Tax. You can invest up to £20,000 each tax year.
    • Use Your Pension: Like an ISA, any growth within your pension pot is sheltered from CGT.
    • Think as a Couple: If you’re married or in a civil partnership, you can transfer assets to your partner without triggering a CGT event. This allows you to use both of your individual £3,000 allowances, potentially shielding up to £6,000 of gains per year.
    • Harvest Your Gains Annually: Consider selling investments to realise gains up to the £3,000 annual limit. By “harvesting” your tax-free allowance each year, you can prevent a much larger, taxable gain from building up over time.

    The key takeaway is that the goalposts have moved. The days of ignoring small investment profits are over. By understanding these changes and using the tax-efficient accounts available, you can keep more of your hard-earned money. 💰

  • Capital Gains and Dividend Tax Rates in Australia

    Here are the tax rates and how they apply to capital gains and dividends for Australian resident individuals.

    It is important to note that the Australian financial year runs from 1 July to 30 June. The rates below are the most current available.

    Individual Income Tax Rates (2024-2025)

    The tax on both capital gains and dividends is determined by your marginal income tax rate. From 1 July 2024, the following rates apply to Australian resident individuals:

    Taxable IncomeTax on this Income
    $0 – $18,200Nil
    $18,201 – $45,00019% of the excess over $18,200
    $45,001 – $135,000$5,092 + 30% of the excess over $45,000
    $135,001 – $190,000$32,097 + 37% of the excess over $135,000
    $190,001 and over$52,447 + 45% of the excess over $190,000

    Important Note: In addition to the rates above, most resident taxpayers are also required to pay the Medicare Levy, which is 2% of their taxable income. Low-income earners may be eligible for a reduction or exemption.1

    Capital Gains Tax (CGT) Rates

    As explained previously, Australia does not have a separate tax for capital gains. The “rate” is your marginal income tax rate plus the Medicare levy. The key is how much of the gain is subject to tax.

    • Assets held for less than 12 months: 100% of the net capital gain is added to your taxable income and taxed at your marginal rate.
    • Assets held for 12 months or more: You are entitled to a 50% CGT discount.2 This means only 50% of the net capital gain is added to your taxable income and taxed at your marginal rate.

    Example with Actual Rates:

    Let’s say you are in the 30% tax bracket with an income of $80,000. You make a $10,000 capital gain on shares.

    • Held for 10 months (no discount):
      • Taxable gain: $10,000
      • Tax payable: $10,000 x (30% + 2% Medicare Levy) = $3,200
    • Held for 14 months (50% discount applies):
      • Taxable gain: $10,000 x 50% = $5,000
      • Tax payable: $5,000 x (30% + 2% Medicare Levy) = $1,600

    Dividend Tax Rates

    The tax rate on dividends is also your marginal income tax rate. However, the effective tax you pay is significantly altered by franking credits, which are tied to the corporate tax rate.3

    • Standard Corporate Tax Rate: 30%
    • Base Rate Entity Corporate Tax Rate: 25% (for companies with an aggregated turnover of less than $50 million)

    The franking credit attached to your dividend is based on the tax rate the company paid.4

    Unfranked Dividends:

    These are simple. The entire dividend amount is added to your taxable income and taxed at your marginal tax rate plus the Medicare Levy.

    • Example: You receive a $1,000 unfranked dividend. Your marginal rate is 30% (+2% Medicare Levy).
      • Tax payable: $1,000 x 32% = $320

    Franked Dividends:

    This is a two-step process to calculate your tax.

    1. “Gross up” the dividend: Add the franking credit to the cash dividend you received to determine the pre-tax amount to include in your assessable income.
    2. Calculate tax and apply the credit: Calculate the tax on the grossed-up amount, and then subtract the franking credit as a tax offset.

    Example: Fully Franked Dividend from a 30% Tax Company

    You receive a $700 cash dividend, fully franked.

    1. Gross-up:
      • The company paid 30% tax, so the $700 represents the 70% of profit paid to you.
      • Franking Credit = ($700 / (1 – 0.30)) – $700 = $300
      • Grossed-up Dividend (taxable income): $700 + $300 = $1,000
    2. Calculate Tax Outcome:
      • If your marginal tax rate is 47% (45% + 2% Medicare Levy):
        • Tax on $1,000: $1,000 x 47% = $470
        • Less franking credit: $470 – $300 = $170 tax to pay
      • If your marginal tax rate is 32% (30% + 2% Medicare Levy):
        • Tax on $1,000: $1,000 x 32% = $320
        • Less franking credit: $320 – $300 = $20 tax to pay
      • If your marginal tax rate is 21% (19% + 2% Medicare Levy):
        • Tax on $1,000: $1,000 x 21% = $210
        • Less franking credit: $210 – $300 = -$90
        • Result: $90 cash refund from the ATO

    Disclaimer: These examples are for illustrative purposes. Individual financial circumstances can vary, and you should consider seeking advice from a registered tax agent or financial advisor.