A tax expert has urged BTL investors to use or lose their annual capital gains tax (CGT) exemption to avoid being landed with a big tax bill.

This exemption often remains unused even among experienced investors, who let it expire each tax year, explains Gary Smith, financial planning partner at wealth management firm Evelyn Partners.

“Very often for investors sitting on long-term gains it can be advisable to chip away at their tax liability by realising some profits each year so that they are not landed with one big tax bill when they come to sell the whole holding at once, with only one year’s CGT exemption available to set their profits against,” he said.

Now that the CGT exemption is only £3,000 a year, and tax rates have increased to 18% and 24%, it’s more important than ever for some investors to consider seeking a bit of tax relief each year by realising a portion of their gains, added Smith.

Even though the tax year end is fast approaching, there will still be time for many investors to act.

Reduction in the CGT allowance

He advised that to try and manage this reduction in the CGT allowance, investors should make sure they use their annual ISA allowance of £20,000 - as gains within these accounts are tax-free - along with their pension allowances, as investments held within a pension are also free of capital gains tax.

“Don’t forget that it is not just your investments that will be subject to CGT, it also includes other assets, such as second homes, buy-to-let properties or holiday lets,” added Smith.

“Therefore, if you are going to sell a property during a tax year, consider not selling investments that would also realise gains during that tax year, or sell those that would realise a capital loss to reduce the amount of CGT payable on the sale of the property.”