As part of the Autumn Statement in 2022, the Chancellor announced that the Annual Exemption Amount (AEA) amount for Capital Gains Tax was to be reduced over both the 2023/24 and 2024/25 tax years.
From 6th April 2023, the AEA was reduced from £12,300 to £6,000, and from 6th April 2024 it will reduce further to £3,000, with these levels fixed rather than them increasing each year in line with inflation. Gains above these levels will be subject to CGT at the prevailing rate, currently 10% for basic rate taxpayers and 20% for higher rate taxpayers. Sales of residential property that is not your main residence carry higher tax rates of 18% and 28% for basic and higher rate taxpayers respectively.
For most Trusts, these exemptions are half of those for individuals.
There were also changes made to fix reporting limits to £50,000, where total disposals in a tax year are greater than this, then they need to be reported to HMRC as part of self-assessment.
The Government’s own figures suggest that 570,000 people will be affected by these changes, with 260,000 individuals and trusts being brought into the scope of CGT for the first time.
Investments held in Individual Savings Accounts (ISAs) and pensions are not subject to capital gains tax, and so these are unaffected by the changes to the AEA.
For investments held in general investment accounts (GIAs) this will mean that growth in your investments is more likely to be subject to tax when you sell funds.
It is important to ensure that you take advantage of your annual exemption, and annual allowances for ISAs and pensions, as this will help shelter your investments from further tax. Where there are losses on the sale of an investment in a general investment account, or other investment subject to CGT, then these can be recorded and used to help offset future gains. Recording of these is an important part of keeping your financial plan up to date.
General investment accounts are an important part of any client’s portfolio, but the changes to the AEA mean that they need to be reviewed more frequently, and a plan in place for their management to ensure that an unexpected tax bill is not created.