Insight | Financial planning
Navigating the changing terrain of Capital Gains Tax
15 January 2024
Any gain above the CGT allowance is charged at the rate of either 10% or 18% for basic rate taxpayers, and 20% or 28% for higher or additional rate taxpayers, with the higher rates applicable when disposing of residential property that is not your primary residence. There is no CGT triggered when your primary residence is sold or replaced.
From April 2024, the CGT allowance will be halved from £6,000 to £3,000 – having already being reduced from £12,300 to £6,000 in April 2023. This represents a significant reduction in the allowance and potentially higher CGT liabilities. This will potentially impact a number of financial planning opportunities.
Ordinarily, we may advise clients to fully utilise their pension or ISA contributions on an annual basis by moving funds from portfolios such as General Investment Accounts where CGT may be triggered into a pension or ISA which currently attract more favourable tax treatment. Previously, we may have been able to move these funds by creating gains within the CGT allowance and therefore not triggering a tax liability. With the reduction in the allowance there is a narrowing in the scope to move these funds without triggering a CGT charge.
It may also impact the freedom to trade where clients wish their investment portfolio to be managed to tax, rather than risk appetite. Managing to tax means instead of being able to trade freely to keep the portfolio aligned to the clients agreed attitude to risk we are restricted by the tax implications this would have, this results in a portfolio taking more, or less, risk than they may wish to take. When an investment is sold in the portfolio which causes a gain, this will use up some of the individual’s allowance or if a loss is made, this can be used to offset gains. If our clients do not wish to incur any gains above the CGT allowance, this may complicate the way in which we implement some mandates.
With the reduced allowance, it is likely that more investors are going to incur gains above the annual allowance and have a tax liability to pay. Each person’s circumstances will be different, but it is imperative that someone looking to create gains in their portfolio is aware of the reducing allowance and impact on their tax position. There are a few things that could be considered which may reduce potential CGT liability, such as:
- Utilising the tax-free allowances available to you in each tax year
- Exploring any options available for transferring assets between spouses/civil partners
- If suitable for you, then spreading disposals over different years may be beneficial
- Ensuring that your tax returns are kept up to date and accurate, allowing for potential losses to be considered going forward
- Using tax efficient savings vehicles, such as (J)ISAs and pensions
You should always seek professional advice, as there may be more beneficial options open to you (such as debt repayment)
Please do not hesitate to reach out to Jamie Brown or your usual ASAM financial adviser should you wish to discuss any aspects of this article.
Anderson Strathern Asset Management Limited are not authorised to provide tax advice, and information supplied should not be relied upon for tax, accounting or legal advice. Tax treatment depends on individual circumstances and all tax rules may change in the future.