The financial planning journal

Save thousands using your CGT allowance

23 February 2021

This tax year could be your last chance to save thousands, by making use of your capital gains tax (CGT) allowance.  

We all have an annual CGT allowance of £12,300, meaning a couple can make tax free gains of £24,600 between themwhich is certainly not to be sniffed at. Any gains over this are taxed at 10% or 20% depending on whether you sit in the basic or higher rate tax band. Althoughit’s worth mentioning that for second properties, this tax does increase to 18% or 28%. 

You, of course, only get one shot at using your annual allowance. So, if you have any uncrystallised gains in a normal, taxable account you should aim to make disposals every tax year (within the allowance) to reduce your tax liability.  

Thankfully, this doesn’t mean you actually have to take the money out. If you are clever about it, you can continuously reduce your tax exposure whilst keeping your money growing.  

Unfortunately, you cannot simply sell and then instantly re-purchase the same investments, to use up your annual exemption. However, you can sell your investments within a general investment account and then immediately purchase the same investments within a tax-free ISA.  

Alternatively, a good financial planner will crystallise gains by finding an almost identical investment fund to the one you already hold. The adviser can then simply sell your existing investment and re-invest the proceeds into the similar fund. This way you can remove all the taxable gains within your portfolio, (up to the annual allowance), without materially impacting your investments. 

When done correctly, people can grow huge amounts in taxable accounts over time, alongside their ISAs and pensions, and have very little tax exposure to show for it. However, most of these people have been working with an experienced financial planner for a fair amount of time.  

Now, here’s why this tax year may be your last chance to take advantage of your CGT allowance… 

The Office of Tax Simplification recently completed a review for the Chancellor which recommended sweeping changes to the rules around CGT. The suggestions included aligning CGT with income tax rates, which could double CGT. In addition, guidance to slash the annual exemption from £12,300 to as little as £2,000 was also outlined. The combination of the two could have a considerable impact for investors.

These are only recommendations but COVID has to be paid for somehow and CGT is currently at historical lows.  

If you have gains in your portfolio or have been thinking about selling a second property with potential tax exposure, now might be the time to get selling.  

So, if you have gains and want to save thousands, don’t sit around waiting any longer- take action this tax year! 

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