Be prepared for changes to Capital Gains Tax thresholds

The Capital Gains Tax allowance (CGT) reductions announced by Chancellor Jeremy Hunt in November’s Autumn Statement could have a significant impact on investors. 

The threshold for starting to pay will fall from the current rate of £12,300 to £6,000 from April 2023 and £3,000 from April 2024. 

CGT is what you pay on any gain that you make when you come to sell an asset, such as a second home or shares. 

However, the annual CGT exemption allows you to make a certain value of gains before you pay tax on any additional gains.  

Higher-rate or additional-rate taxpayers pay 28 per cent on gains from residential property and 20 per cent on gains from other chargeable assets. 

If you are a basic-rate taxpayer, you will be charged 18 per cent on residential property and 10 per cent on other gains — if the amount is within the basic income tax band. Steps which could minimise taxation include: 

  • Make sure you use your allowance for the current year as soon as possible.  
  • If you are married, you can utilise your spouse’s unused allowance.  You can transfer your assets into joint names if you are married or in a civil partnership without triggering a tax event. This doubles your £12,300 allowance to £24,600 in one year.  
  • Consider greater use of tax-free schemes, such as ISAs. 
  • Increase pension contributions and use your pension fund to make your investments. 
  • Utilise tax-efficient investments such as the Enterprise Investment Scheme and Venture Capital Trusts. 

So now could be a time for investors to review their portfolios and decide whether they should transfer or dispose of certain assets before these changes take place. If you want to take advantage of the current CGT tax rate it is best to seek advice from a qualified tax adviser. 

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