Capital Gains Tax changes you need to know!

By Rachel Efetha, Chartered Financial Planner.

In his Autumn Statement, Jeremy Hunt announced massive cuts to Capital Gains Tax (CGT) allowances over the next two tax years.

What is CGT?

Capital gains taxes are due only after an investment is sold. Capital gains taxes apply only to “capital assets,” which include stocks, bonds, digital assets like cryptocurrencies and NFTs, jewellery, coin collections, and property (other than your main residence).

What assets are free of CGT?

Private motor cars, including vintage cars, gifts to UK registered charities, some government securities, prizes and betting winnings, cash, assets held in ISAs or pensions, foreign currency held for your own use, certain tax wrappers such as Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs).

How much tax is payable?

The CGT rate (excluding residential property) is 10% for basic rate and non-taxpayers and 20% for higher and additional rate taxpayers. For residential property, the rates are 18% and 28% respectively

What is the Capital Gains Tax Allowance?

You are allowed to make a certain amount of gain each year before paying any tax on it. For the current tax year, 2022/23 that amount is £12,300 for individuals and £6,150 for UK Trusts (split between multiple trusts of the same settlor)

What is happening to the Capital Gains Tax Allowance?

The Chancellor of the Exchequer is cutting the allowances by more than half for gains after 5th April 2023 and the new allowances will be £6,000 for individuals and £3,000 for UK Trusts.

After 5th April 2024, they will be cut in half again with the allowances being £3,000 for individuals and £1,500 for UK Trusts.

What do I need to do?

If you have a direct shareholding, ‘unwrapped’ general investment account, or a company share save/ Save as You Earn scheme that has pregnant gains of £3,000 or more it may be worth selling them this tax year (i.e. before 5th April) in order to avoid paying tax in later years. Please contact your Financial Adviser or Accountant to discuss this sooner rather than later.

If you use a Discretionary Fund Manager, then they will be managing your CGT for you and realising gains each tax year to make the most of the allowances available. However, after 2024/25 when the allowances are as low as £3,000, they are likely to have situations where creating a taxable gain is unavoidable.

What is a “pregnant gain”?

If you subtract the purchase price from the current value, you will find your pregnant gain. On sale, your pregnant gain becomes a realised gain.

Certain incidental costs of acquiring or disposing of your asset such as brokerage, stamp duty, sales commission, etc. can be claimed as an expense against the gain.

What should I do if I have made a loss on my investment?

Any capital losses can be offset against a capital gain, for example, if you lost £5,000 on investment A and made £5,000 on investment B, they would offset each other but only if the loss and gain have been realised (i.e. you have actually sold the investment rather than a paper loss)

Can I carry forward any losses if I haven’t made any gains?

Yes, these can be carried forward to offset against gains in future years.

Is there anything else I can do?

Certain investments allow for ‘rollover relief’ allowing you to invest in another asset and defer your CGT bill until you dispose of that new asset. This is helpful if you are currently liable to 20% CGT but are retiring soon and will only be liable to 10% tax on ultimate disposal as you are no longer a Higher Rate taxpayer.

Time your disposals to make use of two different tax years, i.e. sell some assets on 5th April, and some on 6th April.

Take advantage of the fact that disposals to your spouse/ civil partner are free of CGT and transfer half the asset then you will have two sets of CGT allowances between you, or transfer proportionately more if you are a higher rate taxpayer and your spouse is a non or basic rate taxpayer.

How Anstee & Co can help you with Capital Gains Tax planning.

If you are considering your financial options but are unsure about how they may impact your financial future, we can help. We at Anstee & Co. are Independent Financial Advisers which means that the financial advice we offer is unbiased.

The initial meeting is at our cost, so why not contact us today? A meeting can be arranged at a time and location that is convenient for you.

Our expertise covers all aspects of financial planning including pensions, investments and mortgages.

If you have any thoughts on this article, “Capital Gains Tax changes you need to know!”, then we would love to hear from you.

Finally, the information contained in this article is for information purposes only and does not constitute financial advice. Anstee & Co. is authorised and regulated by the Financial Conduct Authority (FCA).