Capital gains tax
In 2020-21 the CGT regime offers some attractive benefits. First of all, you have access to a Capital Gains tax-free allowance of £12,300 per tax year (£6,150 for trusts). Secondly, CGT rates in the UK are also quite competitive on the global stage. Basic Rate taxpayers can pay as little as 10% CGT on non-residential property gains and 18% on residential property (assuming these are under your Income Tax band; i.e. under £50,000). Higher Rate taxpayers pay 20% on gains from non-residential property or shares, or 28% on gains from other assets (e.g. residential property).
However, one possibility in the coming months is that CGT may experience significant changes to raise revenue for the government. Suppose, for example, that you hold £60,000 in shares (i.e. not in an ISA; which would allow you to sell them tax-free). If the amount you originally paid for these was £25,000, say, then your gain is £35,000. If the CGT allowance remains in place, that would mean that £22,700 would be taxable under the current rules. A Higher Rate taxpayer would, therefore, pay 20% CGT on this amount, resulting in a charge of £4,540. However, if we imagine that this tax rate is raised to 40% (i.e. to match Income Tax), then the CGT bill would be doubled to £9,080.
If such a scenario transpires, do you have any options as a Higher Rate taxpayer? Fortunately, there are. One idea would be to consider transferring ownership of some of your assets to your spouse/civil partner, if they are in a lower tax band to yourself or have less in existing assets and haven’t made any gains in their own right. Another is to speak to your financial adviser about spreading the sale of these shares across two tax years; allowing you to take advantage of two tax-free allowances.