Latest figures from HM Revenue and Customs (HMRC) show that a record amount of Capital Gains Tax (CGT) was paid in the 2020/21 tax year. The total CGT payable was £16.7bn which was an increase of 15% from the previous year. The number of taxpayers has increased by 20% year-on-year to 394,000, which is more than double the number from a decade ago.
No longer a rich person’s tax
CGT was often considered to be a rich person’s tax, with some justification as you used to be able to make £12,300 of gains each year before having to reckon with the taxman. However, the allowance for this tax year has been cut to £6,000 and will reduce further to £3,000 in 2024/25, meaning that more small shareholders are going to find themselves paying CGT.
Take sensible steps
Your annual allowance can’t be carried forward to a new tax year. However, any losses can be carried forward – just remember to include them in your tax return.
Every individual has their own CGT allowance, so it can make sense to transfer assets to a spouse or civil partner if they are in a lower tax bracket or haven’t used their allowance in full. Such transfers are usually tax free.
Don’t forget to use your Individual Savings Account (ISA) wrapper in full each year. Currently you can save £20,000 a year and no CGT is payable. Even if your ISA allowance is used up, rather than investing directly in shares and bonds, it makes sense to consider investing through collective funds which do the trading rather than you.
Reduce your taxable income
As the rate at which you pay CGT is dependent on your Income Tax band, reducing your taxable income can have a knock-on benefit for your CGT liability. You could do this by paying more into your pension or gifting to charity.
Sensible financial planning can help to reduce the amount of tax you pay and safeguard your wealth for the future. We can help – please get in touch.
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change. The Financial Conduct Authority does not regulate tax planning.