Newly published data from HMRC has revealed that in the 2019 to 2020 tax year the total Capital Gains Tax liability, realised on £65.8 billion of gains, was £9.9 billion for 265,000 CGT taxpayers. The total CGT liability and gains increased by 3% compared to the previous year.
Jason Hollands, Managing Director at Bestinvest, the online investment service, commented: “The latest data shows the continued importance of CGT receipts to the Treasury as it attempts to find new ways to meet the costs of Covid-19 economic support schemes. While we wait to hear when the date of the next Budget will be, when tax reforms could be introduced, families should give thought to their tax planning and make the most of their current allowances before any changes are introduced.
“Even without rumoured hikes to CGT rates or a reduction in the annual capital gains tax allowances, increasing numbers of people are likely to be impacted by CGT over the coming years as a result of a decision in the Chancellor’s last budget to freeze the annual £12,300 capital gains allowance until 5 April 2026. This freeze is particularly painful in a period of higher inflation and buoyant share prices and valuations on second properties are likely to draw many more people into the web of CGT.
Hollands flagged a number of steps that people might take to reduce a potential CGT liability:
“Married couples and civil partners can transfer assets between themselves free of CGT, to maximise use of tax allowances. This means couples make use of two sets of capital gains allowances when selling shares, two sets of ISA allowances to shelter investments from future capital gains and even where some CGT is likely, shifting investments into the name of whichever partner pays a lower tax rate can help reduce a tax bill.”
Hollands said the CGT threat makes it even more important to invest inside your £20,000 tax-free Isa allowance, where all returns are free of income tax and CGT. “You could sell non-Isa shares or funds then repurchase them within an Isa, or indeed a pension, to protect future gains.”
More sophisticated investors should check out the Enterprise Investment Scheme. Investors with capital gains tax liabilities can defer these by investing in EIS companies, with the liability recrystallising when they sell their shares. There is however no liability to CGT on gains made on EIS shares themselves and eligible investors will also receive a 30% income tax credit on the way in. Of course there is no such thing as a free lunch and the reason generous tax reliefs are provided on EIS is because these are very small, earlier stage unquoted companies and so are high risk investments. This is why EIS is only available to sophisticated investors and why it is important to take specialist advice.
Bestinvest is an award-winning, cost-effective online investment service for UK private investors who prefer to manage their own investments but with guidance, information and powerful analytical tools to help them. The service provides private investors with access to thousands of funds, ETFs, investment companies and UK listed shares.
Bestinvest offers a range of account types, including an Individual Savings Account, a Junior ISA for children, a Self-Invested Personal Pension and a General Investment Account. Bestinvest also provides an execution-only service for investing in Venture Capital Trust new share issues, cutting the costs of investing in tax-efficient VCTs through providing discounts.
Bestinvest is part of Tilney Smith & Williamson, the leading wealth management and professional services group created from the merger of Tilney and Smith & Williamson in September 2020. Tilney Smith & Williamson’s clients are private investors, charities, professional intermediaries, trusts and businesses for whom Tilney Smith & Williamson manage £54.8 billion of assets (as at June 30 2021).