The Chancellor did not increase capital gains tax (CGT) in his Autumn Budget but the Treasury’s tax take will surge anyway. The damage was done back in March, when Sunak froze the CGT threshold at £12,300 for five years, steadily dragging more into the net.
Capital gains tax is charged when you sell assets at a profit, including shares and other investments held outside of a tax-free Isa.
Profits on buy-to-let or holiday properties are also liable, as are gains on paintings, antiques and even jewellery.
Latest figures show that HM Revenue & Customs (HMRC) expects to collect £9.2 billion in CGT this tax year.
It will then jump to £13 billion next tax year, a rise of more than 40 percent.
By 2026/27, when the CGT threshold will have been frozen for five years, the Government expects to collect nearly £20 billion a year.
That’s more than double today’s figure.
Despite the growing threat, too many overlook the danger CGT poses to their wealth, said Sean McCann, chartered financial planner at insurer NFU Mutual.
Now we know why Sunak didn’t increase CGT again last month, McCann said. “Forecasts showing that CGT receipts will more than double in five years may have prompted the Chancellor to leave the tax alone.”
While the CGT tax-free allowance is frozen, shares and other assets are likely to rise sharply as the world bounces back from the Covid pandemic
“The lifetime limit for entrepreneurs’ relief was slashed from £10million to £1million in March 2020, hitting those disposing of qualifying businesses,” McCann added.
Similarly, if your spouse or civil partner is in a lower income tax bracket and pays a lower rate of CGT, consider giving them a larger share of any asset you are selling so that you pay less CGT overall.
Every adult has a £12,300 annual tax-free CGT exemption, so it can make sense to stagger disposals across more than one tax year.
If selling shares or investment funds, a couple could realise £24,600 of tax-free gains before 5 April and a further £24,600 from 6 April.
That would give a total tax-free gain of £49,200.
You can also use tax-free Isas and the Enterprise Investment Scheme (EIS) to reduce your CGT bill. Consider seeking professional advice.