ISAs and pensions could help as capital gains tax to hit more people

The tax is paid on the profits that a person makes when they dispose of an asset, such as selling a second property or certain types of shares. Chancellor Jeremy Hunt announced that the allowance will be halved from next April, with the threshold to be slashed again to £3,000, from April 2024.

The tax is paid at 10 percent or 20 percent on any profits above the allowance, along with an additional eight percent for a residential property.

Jamie Morrison, head of tax at accountancy firm HW Fisher, warned before the Autumn Statement announcement that slashing the capital gains allowance would mean tens of thousands of Britons being hit by the tax.

He said: “The OBR estimates that for the current tax year, capital gains tax accounts for £15billion of overall tax receipts – but this only represents 1.5 percent of all UK tax receipts.

“This explains why the Government would have to make a significant change to capital gains tax for it to result in a substantial and meaningful contribution to the Treasury.

“If the new Chancellor decides to halve the £12,300 tax-free allowance for capital gains to £6,150, tens of thousands will find themselves paying the tax for the first time.”

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Fortunately, there are ways to arrange one’s money to reduce tax liability, such as moving funds into tax-exempt ISAs or into pensions.

Faye Church, chartered financial planner at Investec Wealth & Investment, warned there will likely be a surge in people selling off their assets over the next few months, ahead of the threshold falling.

She said of the tax change: “This is likely to fuel the short-term selling of assets to take advantage of higher allowances before the end of the tax year.

“However, care must be taken in times where values may be depressed. This will not just affect those looking to sell shares or business assets.

“Landlords or second home owners will see more of their assets exposed to rates of 28 percent.


“It is even more important now to make sure our clients are using their capital gains tax allowances allowance each year, especially if you are looking to sell at any point in the future.

“ISA and pensions, where appropriate, are sheltered from capital gains tax and should always be utilised where possible.”

Capital gains tax generated £14.3billion last year for the Government, thanks to rising house and asset prices.

Rob Morgan, chief investment Analyst at Charles Stanley, also encouraged Britons to look at ISAs and pensions to avoid the tax.

He said: “This reinforces the case for utilising ISAs and pensions as far as possible as gains within these are not taxable.

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“It is also worth noting that married couples and those in civil partnerships can also transfer assets to each other to make use of two CGT allowances, or they can look to shift a potential gain to a partner who is in a lower tax band.”

Rachael Griffin, tax and financial planning expert at Quilter, explained how the changes to the tax threshold could affect people with a second home.

She said: “This will spell bad news for anyone looking to sell shares, other assets or second homes.

“Take for example a second homeowner who bought their property five years ago for the average house price in 2017 of £227,000.

“They would have made a gain of £67,559 at today’s average house price of £294,559 and therefore next year when the allowance is cut to £6,000 would pay £17,236 in CGT and if they sold the year after would pay £18,076 when the allowance is £3,000 assuming they are higher rate taxpayers.

“These changes will only come into effect from April 2023 so while the sale of a second property is hard to shield from these changes to CGT, there is still time to use up ISA allowances which would be exempt from CGT altogether if you were to sell shares.

“So the message after today’s budget is to seek advice and make changes while you still can.”

In the current 2022 to 2023 tax year, the maximum a person can save in ISAs is £20,000, which can be split across any number of accounts.

There are several types of ISA available, including cash ISAs, stocks and shares ISAs, innovative finance ISAs and Lifetime ISAs, and a person can only put money into one type of ISA each tax year.

Lifetime ISAs are a Government-backed scheme and offer an attractive 25 percent bonus on any savings, although savers can only put in up to £4,000 a year.

The money also has to go towards buying a first home or towards a person’s funds for their retirement, and can only be set up by a person over 18 and under the age of 40.

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