This tax year could be your last chance to save thousands, by making use of your capital gains tax (CGT) allowance.
We all have an annual CGT allowance of £12,300, meaning a couple can make tax free gains of £24,600 between them, which is certainly not to be sniffed at. Any gains over this are taxed at 10% or 20% depending on whether you sit in the basic or higher rate tax band. Although, it’s worth mentioning that for second properties, this tax does increase to 18% or 28%.
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You, of course, only get one shot at using your annual allowance. So, if you have any uncrystallised gains in a normal, taxable account you should aim to make disposals every tax year (within the allowance) to reduce your tax liability.
Thankfully, this doesn’t mean you actually have to take the money out. If you are clever about it, you can continuously reduce your tax exposure whilst keeping your money growing.
Unfortunately, you cannot simply sell and then instantly re-purchase the same investments, to use up your annual exemption. However, you can sell your investments within a general investment account and then immediately purchase the same investments within a tax-free ISA.
Alternatively, a good financial planner will crystallise gains by finding an almost identical investment fund to the one you already hold. The adviser can then simply sell your existing investment and re-invest the proceeds into the similar fund. This way you can remove all the taxable gains within your portfolio, (up to the annual allowance), without materially impacting your investments.
When done correctly, people can grow huge amounts in taxable accounts over time, alongside their ISAs and pensions, and have very little tax exposure to show for it. However, most of these people have been working with an experienced financial planner for a fair amount of time.
Now, here’s why this tax year may be your last chance to take advantage of your CGT allowance…
The Office of Tax Simplification recently completed a review for the Chancellor which recommended sweeping changes to the rules around CGT. The suggestions included aligning CGT with income tax rates, which could double CGT. In addition, guidance to slash the annual exemption from £12,300 to as little as £2,000 was also outlined. The combination of the two could have a considerable impact for investors.
These are only recommendations but COVID has to be paid for somehow and CGT is currently at historical lows.
If you have gains in your portfolio or have been thinking about selling a second property with potential tax exposure, now might be the time to get selling.
So, if you have gains and want to save thousands, don’t sit around waiting any longer- take action this tax year!
How much do you need to retire and more…
How much income do you need to be comfortable, how much do you need invested and how to pay less tax...
Do you want to improve your tax position?
The more tax you pay, the harder your investments must work to grow your wealth. Our advisers can provide practical advice to help reduce your tax bill. Get in touch to discuss how we can help you.
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All authors have considerable industry expertise and specific knowledge on any given topic. All pieces are reviewed by an additional qualified financial specialist to ensure objectivity and accuracy to the best of our ability. All reviewer’s qualifications are from leading industry bodies. Where possible we use primary sources to support our work. These can include white papers, government sources and data, original reports and interviews or articles from other industry experts. We also reference research from other reputable financial planning and investment management firms where appropriate.
Saltus Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority. Information is correct to the best of our understanding as at the date of publication. Nothing within this content is intended as, or can be relied upon, as financial advice. Capital is at risk. You may get back less than you invested. Tax rules may change and the value of tax reliefs depends on your individual circumstances.
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