Research published today by investment tax reporting experts Financial Software Ltd (FSL) shows the extent to which CGT is gathering momentum as a concern among investors, as growing numbers seek expert advice to protect their assets and avoid being brought into scope.
In a study commissioned by the lang cat involving over 130 financial advisers, more than 91% reported that CGT is of greater concern for them and their clients compared to two years ago. This comes as speculation mounts about a potential overhaul of the tax regime in the government’s first Autumn Statement due on 30 October.
High-rate taxpayers currently pay a 24% levy on gains from residential property or 20% on other assets. Industry commentators suggest this could be raised to match income tax, meaning a rate of 40% or 45%.
The latest statistics from HMRC show that since 2019/20, numbers paying the tax have risen from 272,000 to 369,000, representing a 36% increase. Similarly, forecasts from the OBR[1], show CGT receipts are expected to surge to £15.2 billion in 2024-25 following last year’s reduction in the Personal Allowance from £12,300 per year to £6,000. With the allowance halved again to £3,000 for the current tax year, the expectation is that CGT receipts will increase further still.
Illustrating demand for CGT support, further data from the lang cat’s Analyser software shows that advisers are looking for solutions from providers.
Over the past year, two thirds (62%) selected CGT tools when conducting their due diligence and looking for platforms to partner with. The analysis shows that having a CGT calculator was the top-ranking extra feature out of a total of 600 options, sitting below the vital hygiene factors of having a GIA, ISA, Flexi-Access drawdown, and access to whole of market.
Commenting, Michael Edwards, MD, FSL said: “These findings confirm what we are hearing from our conversations with advisers as more people are being brought into scope for CGT with persistent pressures on the Personal Allowance.
“Understandably, many investors will be feeling nervous about potential changes to the regime and how this might impact their assets. They will be turning to advisers for their expertise to ensure they maximise all the tax allowances available to them. For this reason, advisers need access to essential tools that provide timely and accurate information. This will enable them to recommend the best possible solutions for their clients, ultimately delivering better outcomes.”
Greg Moss, founder of Eleven.2 Financial Planning added: “CGT is definitely going to be a big planning issue for clients and their advisers for the foreseeable future. Shrinking allowances have already moved us from a position where most mass affluent clients have few planning needs around CGT, beyond making sure allowances don’t go unused, to us having to be far more hands-on, manging the tax exposure and trading off portfolio structure with tax incurred. Any further moves to increase the tax burden on capital gains will make this need even more acute.
“This is an area where platforms are able to real value over traditional asset managers, who are still generally very poor at providing CGT information for funds held off-platform. Advisers are really starting to understand the value of good platform CGT tools to help them do the best job for their clients. Some providers seem to understand their important role in facilitating this work, and already provide excellent on-platform tools, some still seem to think it isn’t really their problem.”
[1] Capital gains tax – Office for Budget Responsibility (obr.uk)
