The End of CGT Relief as We Know it
Joe O’Connor
Helping Veteran Business Owners, and Entrepreneurs Achieve Their Goals, Make Money and Overcome ANY Challenges - Multi Award Winning Adviser | Trainer | Coach | Mentor | Vetrepreneur
As we approach the end of the tax year (5 April 2023) Is this the last chance saloon for Capital Gains Tax (CGT) relief, is a question my clients have been asking me.
Which got me thinking…
How useful would it be if I included a brief on this precise subject. Interested to find out more, then read on.
In this edition I thought I’d jump straight in and remind you of the warning Jeremy Hunt gave when he was appointed the Chancellor of the Exchequer. Paraphrasing, he warned he would be taking drastic measures to bolster up the UK’s finances and he is proving true to his word.
Starting on 6 April 2023...
With the introduction of a brutal reduction in the capital gains tax (CGT) exemption. Currently, investors benefit from a tax-free gain of up to £12,300 per annum. Post 6 April that exemption will be slashed to £6,000 in 2023/24 and then down to £3,000 in 2024/25.
Higher and additional-rate taxpayers will pay CGT at 20% on gains that exceed the exemption, rising to 28% if the gains are from residential property. For basic-rate taxpayers, these rates are 10% and 18%, respectively.
There are a number of strategies you can use to reduce CGT, ensuring more of your money stays in your pocket.
That said, CGT can be highly complex and, seeking expert advice, is essential because you could end up paying tax unnecessarily.
Here are some ways to potentially reduce your capital gains tax liability.
1. Use your CGT exemption
Any unused CGT exemption cannot be carried forward from one tax year to the next. Therefore, utilising it fully each year could well reduce the possible risk of incurring a significant CGT liability in the future. If you are planning on making a large capital gain (bearing in mind the imminent changes to CGT limits) doing this before the end of the 2022/23 tax year surely makes sense, because then you can maximise the current £12,300 CGT exemption before it is cut in the 2023/24 tax year.
2. Utilising losses
Using your losses can reduce CGT liability. Gains and losses realised in the same tax year must be offset against each other, which can reduce the amount of gain that is subject to tax. Unused losses from previous years can be brought forward, provided they are reported to HMRC within four years from the end of the tax year in which the asset was disposed of.
3. Transfer assets to your spouse
Transfers between spouses and civil partners are currently exempt from Capital Gains Tax, so long as the transfers are made with no strings attached. By transferring assets to your spouse or civil partner partner you can take advantage of your combined CGT allowances. This effectively doubles the CGT exemption for married couples and civil partners. In addition, transferring assets to a spouse or civil partner in a lower tax bracket can also be an effective CGT strategy.
4. Bed and ISA
Bed and ISA is a worthy term which depicts the short-term nature of the transaction.
Investing in an ISA using the Bed and ISA strategy can be an interesting and effective tactic. This process involves selling assets to realise a capital gain and then immediately buying back the same assets inside an ISA.
Gains (and losses) made on investments held within an ISA are exempt from CGT, so it makes sense, particularly for higher and additional-rate taxpayers, to use your ISA allowance each year. In the 2022/23 tax year, you can invest up to £20,000 in an ISA. For married couples and civil partners, the ISA allowance effectively doubles to £40,000. This strategy enables all future gains on the asset to be CGT free.
Be aware that you may pay stamp duty and other costs when reinvesting in an ISA.
There is also a risk that time out of the market, however brief, could negatively impact on the value of your investments. Therefore, it is always sensible to speak to a professional Financial Adviser who can help you reach a successful conclusion.
5. The magic of Pension contributions
Currently, making a pension contribution from relevant earnings could help you save on CGT. Why? Because it effectively increases the upper limit of your income tax band.
So, what do I mean by this…
If, for example, your earnings have exceeded the point at which higher-rate tax becomes payable by £10000 and you make a gross pension contribution of £10,000. Then your income would reduce from £60,270 to £50,270 (2022/23 tax year) meaning you would remain within the basic rate tax band.
Providing your capital gain plus other taxable income fell within this extended basic-rate income tax band, CGT rate payable would only be payable at 10% instead of 20%.
6. Contribute to the greater good
Give shares to charity - if you give land, property or qualifying shares to a charity, income tax relief and CGT relief are available, which is surely a win win.
7. EIS investing
Any gains made on investments in an EIS (Enterprise Investment Scheme) are free from CGT if held for three years or more.
You might be able to defer a capital gain by investing that gain in an EIS qualifying company, but only if the investment is made one year before or up to three years after the gain arose. The deferred capital gain will come back into charge once you take your money out of the EIS qualifying company.
WARNING - the downside of EIS is that these types of schemes are higher risk than traditional investments.
8. Claim gift hold over relief
Gift hold over relief could be available if you give away certain business assets or sell them for less than they are worth to help the buyer. If you’re eligible, you won’t pay CGT when you give away the assets, but the person you give them to might be liable for CGT when they sell them. You must meet several eligibility conditions, so if you’re unsure speak to a professional adviser.
9. Chattels that escape CGT
Gains on possessions such as antiques and collectibles, called ‘chattels’, may be tax free. For example, items with a predictable life of 50 years or fewer, known as ‘wasting assets’, are CGT free, provided they were not eligible for business capital allowances. Wasting assets include antique clocks, vintage cars, pleasure boats and caravans.
For non-wasting chattels, like paintings and jewellery, the CGT position depends on the sale proceeds, with those £6,000 or under usually being exempt.
10. Knowledge is king
More to the point the use of knowledge is king, so it is always best to seek professional advice in specialist areas you have limited experience with.
CGT is a complicated subject...
And using the services of a professional adviser is paramount. They will explain your options, make sure you are maximising all your tax reliefs, allowances and exemptions, and advise on the best course of action for your individual circumstances.
Feel free to contact us on 018297 60070 for a chat to discover more about our services and how can help you.
Oh, and just one more thing…
As a Veteran on a mission, I always want to go the extra mile and help 1 million business owners and veterans achieve the financial freedom they desire, deserve and dream of. For every 10 copies of Pathfinder Ultimate Success Programme purchased I am donating (via the charity Transformation for Veterans) a copy of the same programme free of charge, to a veteran so they can benefit from the life changing content too. I believe this is truly a win win. A win for you and a win for our veteran community. Click here to order your copy.
Finally…
Remember to watch out for my LinkedIn live when I will share with you my personal take on what I think is likely to happen going forward
Have a brilliant day #HABD
Joe
Joe O’Connor
PS: This year I’m launching a new monthly programme called ‘Money Mindset and Motivation’ To discover how to start & scale any business, get focused & better financial knowledge, build an on point personal brand & create multiple streams of recurring income, then join the VIP waiting list here to be kept updated on the launch date. BONUS - you’ll be entered into a prize draw for a FREE personal coaching session with me (worth £1995)
NB: The value of investments, and any income from them, can fall and you may get back less than you invested. This does not constitute tax or legal advice. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.