Capital gains tax set to rise by 46% - what can investors do?

We’re set to pay more Capital Gains Tax (CGT) on investments this year than at any point in the last 20 years – almost three times more than in 2005.

In the last three months of 2024, UK taxpayers paid £808mn in CGT. That’s up an impressive 46% compared to the same period last year.

Investments outside of an ISA or pension are now far more likely to be liable to tax than a few years ago.

But it’s not all doom and gloom – there’s a way to take control.

This article isn’t personal advice. ISA, pension, and tax rules can change, and benefits depend on your circumstances. Investments rise and fall in value, so you could get back less than you invest. If you’re not sure an action is right for you, ask for financial advice.

What should investors do?

For holders of an ISA or a pension, capital gains and dividends aren’t a worry as they’re both sheltered from UK tax.

And over the long term the benefits start to stack up. Your investments would’ve had years to grow, without having to worry about your tax bill racking up.

Since last tax year, allowances have been slashed and the rates of tax increased for CGT.

You can help reduce your future tax bill by selling your shares and buying them back in a Stocks and Shares ISA or Self-Invested Personal Pension (SIPP). Once inside, they’re sheltered from UK income and capital gains tax.

Commonly called a Bed & ISA or Bed & SIPP, HL’s Share Exchange service can help.

Through one online instruction, you could join nearly 12,000 HL clients who have sheltered their shares from tax this way.

You can’t usually move shares directly into these accounts due to HMRC rules. But with Share Exchange you can sell the shares, move the cash to your Stocks and Shares ISA or Self-Invested Personal Pension (SIPP) and then buy them back again. Buying the shares back costs £11.95 per deal online (less for frequent traders).

You could end up with a lower number of shares than you started with however. This is due to a combination of the dealing charge, plus any other costs associated with buying that share.

Selling your original shares might trigger CGT depending on your personal circumstances and, the investments you move into an ISA or SIPP will count towards your allowance on either product.

Please note that while shares are free to hold in a Fund and Share account, charges apply within an ISA and SIPP. You can also use our CGT calculator to see how much it could cost you to help you plan.

Why move shares to a pension?

Moving your shares to a pension, like the HL SIPP, can be a good option when saving for your retirement. Pensions can offer up to 45% tax relief (up to 48% for Scottish taxpayers) on contributions until age 75. But remember once in a pension your money isn’t usually accessible until age 55 (57 from 2028).

How much tax relief you get on your pension contributions, depends on which tax bracket you’re in.

All future dividends will go straight into your pension, without using up your annual allowance and without having to worry about paying any more tax on them. You can even reinvest those dividends to buy more shares, compounding their value, and the value of your dividends. Although remember, no dividend is ever guaranteed.

Next steps

To place an Share Exchange instruction, you'll need to have an open HL Stocks and Shares ISA or Self-Invested Personal Pension (SIPP), and hold the shares you want to move in a HL Fund and Share account.

If you hold shares with another provider, you can transfer the existing investment account into a Fund and Share account with us. And then proceed with the Share Exchange. Be aware however that as the tax year end approaches, there’s no guarantee the transfer will complete in time. Our deadline for any share exchange instructions is 2pm for the SIPP on 2 April and 2pm for the ISA on 4 April.

If looking to transfer, check if your provider charges exit fees, or if you'll lose any benefits or guarantees by transferring.

Alongside the advantage of moving into a tax-efficient wrapper, consolidating your investment accounts ensures you can keep track of them all in one place. Having them together helps keep you on top of your investments, making it easier to check if you’re diversified and haven’t invested more in some areas than you’d intended.