Alan: a £66,000 share gain, school fees and an unused spouse allowance
Alan, 49, is a higher-rate taxpayer with a salary of £52,270 in 2025/26. On 20 May 2025 he sold 40,000 shares in a FTSE 250 company, acquired in 2011 for £18,000, for £84,000. He holds £40,000 in cash and £95,000 in a general investment account. His wife, Mei, has no income in 2025/26 and has never used her capital gains tax annual exempt amount. Alan needs £60,000 over the next three years for school fees and wants to keep the rest invested for retirement at 62. He has made no ISA subscriptions this year, and his employer offers a salary sacrifice pension scheme. All his existing investments are in accumulation funds. He asks whether he can 'just spread the sale over a few years' to avoid tax.
1. Calculate Alan's capital gains tax liability for 2025/26 if he makes the disposal himself, showing your reasoning.
Read the worked answer
Step 1: the gain. Proceeds £84,000 less allowable cost £18,000 = £66,000 gain.
Step 2: annual exempt amount. The 2025/26 annual exempt amount is £3,000, leaving £63,000 taxable.
Step 3: which rate applies. Gains are taxed at 18% to the extent they fall within the remaining basic rate band, and 24% above it. Alan's taxable income is £52,270 − £12,570 personal allowance = £39,700. The basic rate band is £37,700, so his income already uses the whole band and there is no band left for gains.
Step 4: tax. £63,000 × 24% = £15,120.
Note that the personal allowance is not available against gains; it only affects how much basic rate band remains. The result is an effective rate of about 18% on the £66,000 gain and 22.9% on the £84,000 proceeds. If Alan sold and repurchased the same shares within 30 days, the 30-day matching rule would apply rather than the share pool, so any buy-back must be planned carefully.
2. Explain how an inter-spouse transfer and other reliefs could reduce the tax, and quantify the saving from using Mei's allowances.
Read the worked answer
Transfers between spouses or civil partners living together are treated as made at no gain and no loss, so Alan can transfer shares to Mei before sale without triggering a gain. Mei's base cost is Alan's original cost, so the gain is simply deferred to her.
Mei has no income, so her personal allowance and full basic rate band are unused. She can realise gains of £3,000 (annual exempt amount) plus £37,700 taxed at 18%: a gain of £40,700, with tax of £37,700 × 18% = £6,786.
Alan then realises the remaining £25,300 of gain. After his £3,000 annual exempt amount, £22,300 is taxed at 24% = £5,352. Total tax is £12,138, a saving of £2,982 against £15,120.
The transfer must be an outright gift, made before the sale, and documented. Practical points: the shares must actually be transferred and registered; Mei should not sell immediately back to Alan; and if she later sells, her gain is measured from Alan's £18,000 cost. CGT cannot be avoided by moving assets after a sale has already been contracted.
Further reliefs to consider include spreading disposals across tax years to use two annual exempt amounts, £20,000 each of ISA subscriptions (bed-and-ISA crystallises the gain but shelters future growth), pension contributions that restore basic rate band, Gift Aid, and enterprise investment scheme deferral if the risk is acceptable. Deferral is not exemption.
3. Recommend how Alan should fund the school fees and structure the remaining proceeds, explaining the trade-offs.
Read the worked answer
Liquidity first. Fees of £60,000 over three years are a near-term liability and should not be exposed to equity risk. Hold two to three years of fees in cash or short-dated gilts, accepting a lower return for certainty of capital.
Use the tax wrappers. Alan and Mei can each subscribe £20,000 to an ISA in 2025/26, sheltering £40,000 from CGT and income tax. A bed-and-ISA moves existing holdings into the wrapper but does not avoid the CGT on the gain; the tax cost must be weighed against the future shelter.
Spreading the sale. Selling in tranches across 2025/26 and 2026/27 uses two annual exempt amounts and may allow more gains to fall in the basic rate band if his income changes. It also reduces market timing risk. However, spreading is only useful if the shares are not needed immediately and the price risk is acceptable.
Pension. Salary sacrifice reduces taxable income and can restore basic rate band for gains, as well as saving national insurance. It is not a substitute for fee liquidity because the money is locked until at least age 57 (rising to 58), so it should be funded from surplus cash, not the fee money.
The remaining portfolio. Keep a diversified, low-cost core, maintain an emergency reserve and review the accumulation funds' charges and asset allocation. EIS deferral should only be considered for genuinely surplus capital, given the illiquidity and high risk.