Despite the Capital Gains Tax (CGT) rate on residential property disposals decreasing by 4% this past spring, rising interest rates and the imminent scrapping of holiday let tax reliefs in 2025 led many buy-to-let landlords to sell their properties in 2024.
Speculators believe the new Labour government could increase CGT rates in the Autumn Budget, but this may not be the case, as the rise in residential property disposals by landlords selling up early to avoid higher CGT bills has already increased CGT receipts.
According to HMRC reports, from early April to the end of August this year, the tax agency collected almost 10% more CGT than the same period in the year before.
Compared to buy-to-let landlords, anyone with an investment portfolio has more flexibility in choosing the timing of disposals – but with the annual tax-free amount reduced to £3,000, what can you do to plan ahead for CGT in 2024–2025 and beyond?
How can investors reduce CGT?
Investors with larger portfolios can make the most of annual exemptions and basic rate tax bands with lower CGT rates by spreading out their asset disposals over several years.
It’s important to note that if you make personal pension contributions in the same year as disposing of an asset, this could increase your tax band and therefore the CGT rate.
Those who are married or in a civil partnership can also utilise the annual exempt amount and basic rate tax band of their spouse or partner, as one person can give or sell an asset to the other tax-free, and they will only be liable for CGT if they sell the asset themselves.
However, if CGT rates do increase in the next few years, this type of planning could quickly unravel. It’s important to stay on top of any CGT updates as soon as they’re announced.
Another risky option is to invest in a Seed Enterprise Investment Scheme (SEIS). Offering a CGT exemption of 50% on reinvested gains and the same amount in Income Tax relief, a landlord could benefit from up to 64% in tax relief through such a scheme.
This relief would increase in alignment with any future CGT uplifts, but these high-risk investments should not be undertaken without seeking proper advice.
In the long term, holders of large investment portfolios might have the opportunity to avoid tax liability in the UK by retiring overseas. This isn’t possible for landlords, though, as UK property will still be liable for CGT regardless of their residence status.
What’s the outlook for CGT?
Chancellor of the Exchequer Rachel Reeves is due to share the Autumn Budget on 30th October, when the public will discover the government’s tax plans for the next few years.
In the meantime, HMRC’s CGT guide is available on the government website, which explains the current rules and thresholds that will apply until April 2025.
Still wondering what you should do with your savings and investments? If you want to get a head start adapting to any changes that the Labour government plans to implement, it could be worth seeking financial advice from consultants like our accountants in Barnsley.
If you would like to learn more about our tax consultancy services and how we can help you optimise allowances and exemptions, please call gbac on 01226 298 298 or email info@gbac.co.uk.