Are you prepared for the government’s new Capital Gains Tax rules?

woman using calculator

In April 2024, the government implemented another reduction to the Capital Gains Tax Annual Exempt Amount. Here’s what this could mean for you.

In an effort to increase overall tax receipts, the government has implemented several reductions to tax-efficient allowances and thresholds in the past two years.

These rule changes increased HMRC’s tax receipts to £827.7 billion in the 2023/24 tax year, a 5% increase on the previous year’s takings.

One important tax break that the government has decreased this year is the Capital Gains Tax (CGT) Annual Exempt Amount.

According to The Royal Mint, more than one-third of investors felt “unprepared” for this change, which occurred on 6 April 2024, and half of investors plan to employ new strategies now that the CGT Annual Exempt Amount has gone down.

Keep reading to learn all about the government’s latest CGT rule change, and how this could affect you in the coming years.

On 6 April 2024, the government reduced the Capital Gains Tax Annual Exempt Amount to just £3,000

As the 2024/25 tax year began, the government reduced the CGT Annual Exempt Amount, leaving it at just £3,000.

This comes after the Annual Exempt Amount was reduced from £12,300 to £6,000 in April 2023, meaning that it has fallen by around 75% in just two years.

So, why is the CGT Annual Exempt Amount important, and how could this recent change affect your money?

The CGT Annual Exempt Amount represents how much you can earn in capital gains without paying CGT. “Capital gains” count as profits made from the sale of:

  • Non-ISA shares
  • Business assets
  • Properties that are not your main home, unless your home is very large
  • Personal belongings worth more than £6,000, excluding your car.

Remember, your gains can usually be offset by your losses.

Let’s say that over the last few years, you have been disposing of assets annually to supplement your retirement income. Now, any profits you see above £3,000 could be subject to CGT.

The below table includes the rate of CGT you might pay on profits over £3,000 in the 2024/25 tax year.

  Residential property Non-property assets
Basic-rate taxpayers 18% 10%
Higher- and additional-rate taxpayers 24% 20%

 

If you have been earning capital gains reliably for several years, you may not have realised that the previous Annual Exempt Amounts of £12,300 and £6,000 no longer apply – and this could mean your CGT bill rises unexpectedly this year.

2 ways you could adapt to the government’s new lower CGT Annual Exempt Amount

Being strategic about the disposal of key assets, including buy-to-let properties and non-ISA investments, is always a prudent move.

But now that the CGT Annual Exempt Amount has gone down to just £3,000, it’s even more important to plan ahead.

Here are two adaptations you could consider. Remember that not all investment strategies work for everyone – it may help to consult an independent financial planner before taking action to mitigate your CGT bill.

  1. Bed and ISA

“Bed and ISA” describes an investment strategy that involves selling off non-ISA shares and repurchasing them within a Stocks and Shares ISA.

Any capital gains your investments see within a Stocks and Shares ISA are not subject to CGT, so the Annual Exempt Amount reduction won’t affect your returns.

It’s important to bear in mind that as of the 2024/25 tax year, you can contribute up to £20,000 across all the adult ISAs you hold, including your Stocks and Shares ISAs.

This means that, using a Bed and ISA strategy, you could transfer up to £20,000 worth of your investment portfolio into an ISA, making the most of this handy tax wrapper and avoiding being caught out by the new, lower CGT Annual Exempt Amount.

It’s essential to repurchase the shares you sell immediately, before their value changes, otherwise you could lose wealth in the process. So, while beneficial for many, the Bed and ISA strategy might not be right for everyone – and it could help to ask a professional for guidance before going about it yourself.

  1. Gradual asset disposal

If you are entering or already in retirement, you might be planning to gradually dispose of investments over the coming years. If so, it’s prudent to ensure that your current decumulation strategy is unlikely to affect your CGT bill now that the Annual Exempt Amount is £3,000.

Remember, the Annual Exempt Amount is a “use it or lose it” tax break, meaning you can’t carry forward capital gains from previous tax years. That said, you can sometimes carry forward capital losses from previous years that haven’t already been used to reduce your tax burden.

As such, revisiting your asset decumulation plans every financial year may help to ensure that your strategy helps to reduce CGT where possible.

To learn more about which tax breaks you can carry forward from previous years, read our latest article that explains all you need to know.

Get in touch to learn how an independent financial planner could help you invest smartly

We understand that when tax rules change, it’s hard to know what to do to protect your wealth.

If you feel concerned about a potential increase in your CGT liability, or perhaps you’re set to pay this tax for the first time, we’re here to help you adapt your wealth strategy accordingly.

Email us at hale@kelland.co.uk, or call 0161 929 8838.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

 

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