Capital gains tax allowance changes to hit half a million investors’ profits as tax year begins
Investors are being warned to be aware of the halving in the tax free amount of profit they can make when selling valuable assets, such as shares or a second home.
Wealth manager Nutmeg said investors were likely to be caught out by capital gains tax (CGT) changes coming in on 6 April.
After then the amount of profit or ‘capital gain’ each person can make will be more than halved to £6,000 from the existing level of £12,300.
James McManus, chief investment officer at Nutmeg, explained: “This allowance is called the ‘annual exempt amount’ and it will remain £6,000 for the 2023/24 tax year only, before being halved again to £3,000 in the 2024/25 tax year – a level which HM Treasury has said will remain permanently fixed.
McManus pointed out the £2,000 tax-free dividend allowance will be cut to £1,000 from April 2023 and shrink again to £500 in 2024/25.
He said: “Growing numbers of investors will be brought into the remit of taxes they previously didn’t need to consider, as 6 April heralds the start of a new tax year and the slashing of crucial investment tax allowances. “
How to manage CGT allowance cut
Investors should make full use of other tax allowances available. McManus said the £20,000 annual Isa allowance which shields investors from liability for tax on investment returns, interest and dividends made on investments held within an Isa.
“Investing for the long-term means keeping an eye on tax changes that may affect you in future, so even if capital gains or dividends haven’t been an issue in the past it’s important to be aware of how they might impact any investments in the coming years.
Who is affected by tax change
McManus said the government’s own figures showed 500,000 people would be affected by the slashing of the capital gains tax allowance in the upcoming tax year with a further 70,000 people impacted in 2024/25.
“Crucially, some 260,000 individuals and trusts will be affected by capital gains tax for the first time, which means understanding the rules and acting to limit liability is vital.
“Those who have previously never needed to consider the impact or implications of capital gains tax or dividends tax may want to consider speaking to a financial adviser about the options available and to avoid an unexpected tax bill.”