CGT landscape set for transformative shift as advisers grapple with 260,000 individuals entering scope for first time

by | Mar 18, 2024

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Written by Simon Harryman, Senior Business Development Director at Ingenious

The landscape of Capital Gains Tax (CGT) is undergoing a transformative shift that demands a fresh approach from financial advisers.

Progressive increases in the CGT Annual Exemption Allowance (AEA) for individuals (£1000 in 1977) have been reversed rapidly with a decrease from £12,300 to £6,000 in 2023/24 followed by a reduction to just £3000 in 2024/25. The impact is significant with an estimated 500,000 individuals and trusts being affected in 2023/24, and projections indicating a rise to 570,000 in 2024/25.

 
 

Of this group, a significant 260,000 individuals are anticipated to enter the scope of CGT for the first time. The financial impact is huge, with an expected additional exchequer revenue of £440 million per annum projected by 2027/28, as outlined in the 2022 Autumn statement.

Advisers are now having to grapple with the repercussions of this policy change, and review planning which involves use of the AUA to minimise CGT payable on gains held in investments which sit outside of a CGT efficient tax wrapper. This will inevitably lead to increased interest in CGT-efficient investment vehicles, including Individual Savings Accounts (ISAs), Enterprise Investment Schemes (EIS), Venture Capital Trusts (VCTs), and those which are eligible for Investors’ Relief. Investors’ Relief emerges as a key player in this recalibrated landscape, offering a substantial reduction in CGT payable on the disposal of shares in unlisted trading companies.

Whilst there is a three-year ownership requirement prior to disposal, qualifying gains (up to the current lifetime limit of £10 million) are charged at a favourable rate of just 10%, Investors’ Relief therefore presents an attractive option for investors seeking tax efficiency. Furthermore, some Business Relief (BR) qualifying investments, designed for estate planning purposes, may also qualify for Investors’ Relief.

 
 

An example is our Ingenious Apex service, which not only mitigates Inheritance Tax (IHT) immediately shares are allotted due to complimentary life cover during the BR qualifying period but also issues only new shares which are a key eligibility requirement for Investors’ Relief qualification. This dual benefit makes it particularly appealing for investors who require access to their capital before their demise. 

Financial advisers are poised to play a pivotal role in steering clients toward optimal strategies that align with the changing contours of CGT regulations. As the fiscal horizon continues to evolve, the importance of proactive and forward-thinking financial planning cannot be overstated.

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