Act now to cut future Treasury tax-raid fallout

Rishi Sunak delivers financial services speech at Mansion House

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HM Revenue & Customs already generates about £10 billion a year from capital gains tax (CGT), almost double its takings from inheritance tax, but too many fail to realise the danger this “forgotten” levy poses.

The Treasury’s CGT receipts hit £9.8 billion in the 2019/20 tax year, up fourfold from just £2.5 billion a decade earlier.

They are set to rise even higher after the Chancellor froze the annual CGT allowance at £12,300 until 2026 in his March Budget, a move that will suck more people into the net, and worse could soon follow.

Tax specialists are urging savers and investors who are likely to make a capital gain to start planning in advance to cut their exposure, as Sunak may hike CGT rates in his Autumn Statement or March 2022 Budget.

Rishi Sunak

Hunting for funds: Experts expect a tax raid from the Treasury (Image: Getty)

HMRC building

Big CGT gains for HMRC: About £10 billion a year (Image: Getty)

Alan Harvey, financial planner at wealth manager Brewin Dolphin, said it is thought to be a case of when, not if, the Government decides to hike CGT. “Clients are already contacting us to navigate the potential impact,” he said.

You risk a CGT bill when you sell assets at a profit, including shares and other investments held outside of a tax-free Isa, as well as paintings, antiques and jewellery, and property other than your main home.

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Currently, basic rate taxpayers pay CGT at 10 per cent, rising to 20 per cent for higher-rate taxpayers.

Some will be liable to pay a higher CGT rate of 10 per cent and 28 per cent respectively when selling an investment property or second home.

Many suspect that Sunak will synchronise CGT rates with income tax, which could see some taxpayers paying a punitive 40 or 45 per cent.

Harvey said taking action today could save thousands tomorrow: “Some clients are happy to pay CGT on property or investment sales now rather than in a year or two, when rates are likely to be higher.”

Spreading CGT bills over two or three taxes could reduce the cost, by making full use of your £12,300 annual exemption.

Rishi Sunak

With Sunak rising CGT rates either this Autumn or in March 2020, experts urge savers to cut exposure (Image: Getty)

Tilney Investment Management Services managing director Jason Hollands said married couples and civil partners can transfer assets between themselves free of CGT, to double up their exemptions. “You can further reduce CGT by shifting assets into the name of whichever partner pays a lower tax rate,” he added.

Hollands said the CGT threat makes it even more important to invest inside your £20,000 taxfree Isa allowance, where all returns are free of income tax and CGT: “You could sell non- Isa shares or funds then repurchase them within an Isa, to protect future gains.”

More sophisticated investors should check out the Enterprise Investment Scheme, where share gains are free of CGT if held for at least three years.

William Murphy

William Murphy

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