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June 7, 2023

The swan effect

Time and tide wait for no one.

The new financial year is barely underway but, as we’ve set out in some recent posts, significant changes are on the horizon that may potentially impact your taxes and pensions.

It’s important to be ready.

As we explored in our last article, this summer is a season of change. Amid all this upheaval, our role as financial planners is to be ‘swan-like’. Calm on the surface but kicking away underneath to keep moving.

In the latest of our series exploring the changes that affect your finances, we’re focusing on one of the biggest – Capital Gains Tax (CGT).

Explaining the new-look CGT

The tax-free exemption limit was cut significantly from £12,300 to just £6,000 for this financial year (2023/24) which will bring more people under the shadow of CGT when the next bills are due.

And it is being cut again to just £3,000 for 2024/25. Many more people will become liable as a result.

Capital gains are added to your income and chargeable at 10% (if you’re still in the basic rate threshold) and 20% if you’re in the higher rate threshold (in respect of property it is charged at 18%/28%). It doesn’t apply in every case, as we show below:

You don’t have to pay capital gains tax on… 

•Selling your own home

•Winnings (such as lottery, gambling, or pools)

•Assets held in tax efficient “wrappers” such as ISAs or pensions.

•UK government gilts

•Premium bonds

•Your car (unless used for business purposes)

•Possessions with a limited lifespan (for example an antique watch)

But you’ll be charged CGT for these…

•The sale of stocks and shares (this includes switching between funds)

•Selling a second home or other property such as rental properties

•Jewellery

•Coins and stamps

•Antiques

•Possessions that form part of a set or collection

One thing it’s important to know, is that you must report and pay CGT when you sell off property or land within 60 days of the sale (this includes residential and non-residential properties). Failing to do this would mean a fine and potentially paying interest on any tax due (this doesn’t apply if it is your main residence).

Even if no capital gain is made on the property, the disposal still needs to be reported. The process is simple to do, just set up an online Capital Gains Tax on UK Property account with HMRC. Get in touch with us to find out more.

Alongside CGT, the dividend allowance for this year is also cut in half – down from £2,000 to £1,000. This is also being cut again for the 2024/25 tax year to £500. And this means potentially more investors will need to complete a tax return this year if their dividend income exceeds £1,000.

What are we doing to help you?

From this month, we will be getting in touch with our clients, raising awareness on what these changes will mean for you.

For example:
Now that we are in a new tax year, some clients will be continuing with the process of gradually improving the overall tax efficiency of their investment portfolio. This is done by transferring £20,000 from their Investment Account into their investment ISA (thereby making full use of this tax year’s individual ISA allowance). This process is referred to as ‘Bed & ISA’.

As this process can potentially give rise to a capital gain, it makes sense to consider doing so sooner rather than later within the tax year.

Over the next month or so we’ll be getting in touch with any client with Collective Investment Accounts above a certain value so we can go through the options and answer questions such as “Will I have to fill out a tax return?” “Is it better to do it myself or find an accountant?” “Where can I use my money most efficiently?”

The questions (and potential scary headlines) will increase, particularly when we get closer to the end of this financial year, but this is no time to panic.

The changes to CGT and the dividend tax mentioned in this article do mean many more people are now impacted who were previously exempt.

But this is where the role of your ‘swan-like’ adviser comes in. We’re planning ahead, taking steps to help our clients mitigate these changes wherever we can. So, we can all stay calm through periods of great change.

In other news

We’re proud to be supporting Cancer Research UK’s Race for Life this year. We have a team of 17 – the Money Mudders – taking part from across Sutherland Independent. Wish them luck!

June 7, 2023