7 ways to save CGT ahead of Keir Starmer’s ‘painful Budget’

Keir Starmer’s warning that the 2024 Autumn Budget would be ‘painful’ has fuelled fresh speculation that we’re heading for more tax on investments, particularly capital gains tax (CGT).

While inflation has been rising, the CGT allowance has been falling and was slashed in half from £6,000 last tax year to £3,000 this year – the lowest tax-free allowance since the early 1980s.

The concern is we could see this compounded by the upping of the tax rate.

But while investors are forced to wait for more concrete news, there are things you can do now to help limit the damage of any potential changes in CGT.

This isn’t personal advice. ISA, pension and tax rules can change, and their benefits depend on your circumstances. If you’re not sure what’s right for you, ask for financial advice. Remember, all investments can rise and fall in value so you could get back less than you invest.

7 ways to save CGT

You can often choose when to take a capital gain. So you can currently take a gain this tax year and make up to £3,000 of gains tax free.

It means you might want to realise any gains now while you know where you stand.

Remember though, time in the market is an important part of investing success. It’s important you don’t rush into any decisions, or allow the tax to force you into decisions you wouldn’t otherwise take.

If you’ve made losses on some investments as well as gains on others in the current tax year, you can use this to cut your tax bill.

When you complete your tax return, include the losses and they’ll be offset against the gains. If you make more losses than gains, claim for the extra, because you can carry them forward to future tax years to offset against future gains.

By investing through a Stocks and Shares ISA, you can avoid UK taxes including CGT completely.

This makes a huge difference when you sell up and cash out, and whenever you rebalance your portfolio as you go along.

You can put up to £20,000 into ISAs this tax year.

If you have shares in an HL Fund and Share account, you can use the Share Exchange (Bed & ISA) process to sell them outside an ISA, move the cash into the ISA wrapper and buy back the same shares again, all in one instruction. You have to stick to your overall £20,000 ISA allowance though.

But when your investments are in an ISA, you won’t have to worry about UK dividend tax or CGT.

Also, don’t forget about your £3,000 CGT allowance when you’re selling investments to move into an ISA.

Money paid into a pension, like a Self-Invested Personal Pension (SIPP), will grow free of CGT – plus you get tax relief from the government on what you pay in.

The amount you can pay in, and the amount you can get tax relief on, depends on your circumstances.

If you pay tax at a higher rate, you can benefit from higher rates of tax relief..

It means, adding money to a pension can push people out of paying a higher rate of tax altogether.

The CGT rate is lower for basic- rate taxpayers, so bringing yourself under this threshold means you’ll pay tax at a lower rate on at least some of the gain.

Remember, you can only usually take money out of a pension from age 55 (rising to 57 from 2028).

If you’re married or in a civil partnership, you can transfer the ownership of some assets to your spouse or civil partner and you won’t pay CGT on the transfer.

When they sell up, there might be tax to pay, and the gain will be calculated by comparing the cost on the day of selling with the day when you originally bought the investment.

However, they have a CGT allowance of their own to take advantage of, so a chunk of the gain might not be subject to tax.

If they’re taxed at a lower rate, they might also pay any CGT at a lower rate too.

If you give investments to your spouse or civil partner, they can wrap them in an ISA or pension too to keep them tax efficient.

Likewise, you can pay into the Junior ISAs of any children or grandchildren under 18, or Lifetime ISAs of children aged 18-39. It means this money will then be in a tax efficient account no matter what any government chooses to do with CGT.

Both accounts have annual limits, so it’s worth talking as a family about any contributions people have already made before topping-up.

Remember, when you pay into a JISA or LISA, you’re giving up access and control of the money. Children can access a JISA when they turn 18 and a young person can access a LISA to help them buy their first home – or from age 60.