Thousands of Britons could be caught out by CGT changes

Autumn Statement: Expert discuss tax rise

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Chancellor Jeremy Hunt announced the much-anticipated autumn budget on November 17, which sought to address a £50billion fiscal hole caused by the Conservative’s mini-budget in September. The plan introduced £24billion worth of tax hikes, including those of capital gains taxes – and there are some key rules Britons must take note of to mitigate the risk of a penalty.

Announcing the new measures to the House of Commons, Mr Hunt said: “I have tried to be fair by following two broad principles: firstly, we ask those with more to contribute more; and secondly, we avoid the tax rises that most damage growth.

“Although my decisions today do lead to a substantial tax increase, we have not raised headline rates of taxation, and tax as a percentage of GDP will increase by just one percent over the next five years.”

After confirming several tax threshold freezes and rises, including lowering the threshold of the 45p rate to those earning £125,140 and freezing tax-free allowances on inheritance, National Insurance, and taxable income, Mr Hunt went on to explain the reforms he would be making on unearned income.

Mr Hunt said: “The dividend allowance will be cut from £2,000 to £1,000 next year and then to £500 from April 2024. The Annual Exempt Amount for capital gains tax will be cut from £12,300 to £6,000 next year and then to £3,000 from April 2024.

“These changes still leave us with more generous allowances overall than countries like Germany, Ireland, France, and Canada.”

However, the new and gradual capital gains tax (CGT) threshold reduction could leave many Britons in hot water as according to interactive investor, even small gains will be taxable.

From April 2023, buying some shares for £5,000 and selling them a few years later for £11,000 will trigger a gain and incur a tax bill.

Alice Guy, personal finance editor at interactive investor, explained: “The CGT rules mean that you’ll need to report a gain through your tax return or by using the Capital Gains Tax Service, or you could end up breaking the law and potentially paying a penalty.

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“If you sell a second home, you’ll need to report CGT gain even sooner, within 60 days of the sale to avoid a penalty.

“Even gifting assets to an unmarried partner or children could leave you with a CGT bill. That’s because gifting assets to someone else is counted in the same way as selling them as far as the taxman is concerned. Splitting up and dividing up your assets with an unmarried partner could mean you both have a big capital gains tax bill and need to do a tax return.”

Inheriting a house could also lead to a CGT bill, much to the surprise of many. Ms Guy said: “The taxable gain is the amount the house was worth on death compared to when it’s sold.

“There’s often a time lag when people come to sell a home, following a death, leaving them with a CGT bill on top of inheritance tax.”

The changes will also have an impact on those renting out their properties. Susannah Streeter, senior investment and markets analyst explained: “For buy-to-let investors who own property as part of a limited company, these changes could be a triple whammy, coming on top of rises in corporation tax.

“They will not only have to pay more tax on dividends on profits from rent but now that CGT has been aligned with interest rates and they sell up, they could be faced with a hefty bill in just one hit.”

Therefore, protecting assets from CGT has never been more important and using tax-efficient wrappers like an ISA or pension can help people keep more of their wealth.

Ms Guy said: “You’re allowed to invest up to £20,000 per year in a stocks and shares ISA. You can also sell shares and rebuy them within a stocks and shares ISA in what’s known as a ‘bed and ISA’. You can also use Bed and SIPP.”

According to interactive investor, a Bed and SIPP allows people to top up their pension with investments such as funds or shares they already hold.

Ms Guy added: “By selling shares with a gain just under the CGT allowance and rebuying them within your ISA, you can protect your gain from the taxman.”

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