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Following the recent changes in Government from the past few weeks, I thought it would be timely to remind ourselves of the latest changes to Capital Gains Tax. The easiest way for Labour to raise cash would be to increase Capital Gains Tax (CGT) so it could be an interesting factor to consider moving forward. What’s interesting is that relatively few people pay CGT – usually less than 0.5% of the population in any one year.
What is CGT?
Capital Gains Tax (CGT) is a tax on gains made on the value of your assets (things that you own). This can include for example, the sale of shares, business assets or second homes. It can also apply to valuables worth £6,000 or more (excluding your car) if you sell them at a profit. This also includes gains made on cryptocurrency sales.
Managing CGT / CGT rates & allowances
The CGT rates changed last year, effective from 6th April 2023 and CGT is currently charged at 10% for a basic rate tax-payer and 20% for additional & higher rate tax-payers. Different rates apply for trusts and disposing residential property.
The CGT allowance for the current 2024/2025 year is £3,000 for individuals and £1,500 for Trusts. Gains over this amount are charged within the basic rate at 10%, or 20% for higher and additional rate, depending on your income tax band.
The recent changes in the CGT allowance present a good opportunity to review your investment vehicles and consider which structures and assets are most tax efficient for your needs. The CGT management of investments held within a bespoke portfolio, model portfolio or a unitised fund can present different opportunities for you as a client of a wealth manager.
Bespoke Investment Portfolio
A bespoke investment portfolio is designed and constructed in accordance with your needs and requirements, and it invests directly in shares of companies or collective funds, whereby the shares are held directly by you as a client.
If shares/funds within the portfolio are sold and have crystalised a gain or loss, this would contribute towards your annual CGT allowance.
Having a segregated bespoke portfolio offers some key advantages for you:
- Making changes within the portfolio and selling some holdings at a gain would ensure that an investment manager can utilise your annual CGT allowance on an ongoing basis.
- Having a bespoke investment portfolio could also help with managing your broader CGT position. For example, any crystalised capital gains from selling a rental property, can be offset by crystalising losses from sale of shares within your investment portfolio and therefore reducing the overall tax liability for you.
We commonly manage investment portfolios when there are capital gains in excess of the annual allowance. These capital gains have often accumulated over time and are attached to a favoured stock or a high-growth company. Part of our specialist approach is to assess investments with capital gains and to include them as part of our overall asset allocation or sectoral exposure. Let’s see some of the ways that we can use this approach.
In-specie transfers of shares – where we can transfer the ownership of shares from one person to another in its current form and without needing to convert shares to cash first. We can manage investments in a tax-efficient manner, taking into consideration the individual’s tax band. Often, we would facilitate inter spousal shares transfers, to ensure that both CGT allowances are fully utilised on an ongoing basis. When a chargeable asset is transferred between two spouses or civil partners, there is a disposal by the transferor spouse / civil partner and an acquisition by the transferee spouse / civil partner for capital gains tax purposes.
Tax wrappers/accounts – we can hold investments in tax wrappers such as ISAs (Individual Savings Accounts) or GIAs (General Investment Accounts). Investments held in an ISA wrapper are free from any income or capital gains tax, whereas investments held within GIAs do not offer protection against tax.
Bed and ISAs – A Bed and ISA transaction is very useful if you want to protect more of your investments from tax. It is a pair of dealing transactions carried out at the same time, where you sell an investment from your general investment account and immediately buy it back in your stocks and shares ISA. This helps you make the most of your annual tax-free ISA allowance and means that any future growth and income generated by your investments will be protected from tax by the ISA.
I hope that by reading this you have gained a better idea of CGT planning and understand some of the nuances within it. If ever you are keen to discuss this topic further or would like a no-obligation initial chat to understand your personal situation and how we might be able to help you in the future, please give me a call on 0161 832 6868.
Tax treatment depends on the individual circumstances of each client and may be subject to change in future. All statements concerning tax treatment are based upon our understanding of current tax law and HMRC practise and can be subject to change.
Your capital is at risk. Please remember that investments, and income arising from them, can go down as well as up. You may not necessarily get back the amount you invested.
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Important information
It is advisable to seek independent financial advice from a tax specialist before making financial decisions. Tax treatment depends on the individual circumstances of each client and may be subject to change in future. All statements concerning tax treatment are based upon our understanding of current tax law and HMRC practice and can be subject to change.
The information contained in this article does not constitute a personal recommendation and the investment or investment services referred to may not be suitable for all investors. Any opinion or estimate expressed in this publication is Investec Wealth & Investment (UK)’s current opinion as of the date of this article and is subject to change without notice. The value of investments and any income from them is not guaranteed and may go down as well as up; you may get back less than the amount invested. Past performance is not an indication of future performance.
Investec Wealth & Investment (UK) is a trading name of Investec Wealth & Investment Limited which is a subsidiary of Rathbones Group Plc. Investec Wealth & Investment Limited is authorised and regulated by the Financial Conduct Authority and is registered in England. Registered No. 2122340. Registered Office: 30 Gresham Street. London. EC2V 7QN.