Advisers need to take a new approach to capital gains tax (CGT) as more than a quarter of a million people are set to be caught in its net for the first time, says Ingenious.
Progressive increases in the CGT Annual Exemption Allowance for individuals have been reversed rapidly in the past year, with the government announcing a decrease from £12,300 to £6,000 in 2023/24. A further halving of the allowance to £3,000 will come into force in 2024/25.
It’s estimated the drastic reduction in allowance has impacted 500,000 individuals and trusts in the 2023/24 tax year, with this figure expected to reach 570,000 in 2024/25. Of this group, around 260,000 individuals are expected to enter the scope of CGT for the first time.
The move will rake in an extra £440 million per year in revenue for the Exchequer by 2027/28.
According to Ingenious, advisers will inevitably look to CGT-efficient investment vehicles such as ISAs, Enterprise Investment Schemes, Venture Capital Trusts and those eligible for Investors’ Relief.
Simon Harryman, senior business development director at Ingenious, said: “Investors’ Relief emerges as a key player in this recalibrated landscape, offering a substantial reduction in CGT payable on the disposal of shares in unlisted trading companies.
“Whilst there is a three-year ownership requirement prior to disposal, qualifying gains, up to the current lifetime limit of £10 million, are charged at a favourable rate of just 10%. Investors’ Relief therefore presents an attractive option for investors seeking tax efficiency.”
Harryman said advisers will play a “pivotal” role in steering clients toward optimal strategies that align with the changing CGT landscape.
He added: “As the fiscal horizon continues to evolve, the importance of proactive and forward-thinking financial planning cannot be overstated.”
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