What is happening to the CGT annual exempt amount?

  • Describe some of the changes to the CGT annual exemption amount
  • Explain what impact this will have on investors
  • Identify what steps investors can take to make the most of the CGT exempt amount
  • Describe some of the changes to the CGT annual exemption amount
  • Explain what impact this will have on investors
  • Identify what steps investors can take to make the most of the CGT exempt amount
pfs-logo
cisi-logo
CPD
Approx.30min
pfs-logo
cisi-logo
CPD
Approx.30min
twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
pfs-logo
cisi-logo
CPD
Approx.30min
What is happening to the CGT annual exempt amount?
The CGT annual exempt amount is due to be cut from April 2023, and then cut again the following year. (FT Montage)

What to consider before tax year end 

These findings do not come as a surprise. Crystallising gains up to the allowance has been an effective part of tax year end planning for many advisers who actively manage their client portfolios, delivering an opportunity to take a slice of investment profits tax free. 

But with the tax benefit of this approach set to reduce over the next two tax years, it means taking advantage of the £12,300 on offer this year is even more important. 

There will be several things to be mindful of when making disposals:

1. Previous disposals 

Gains (or losses) may have already been made when rebalancing portfolios or making disposals for other reasons, and these must be considered before making further disposals. 

Where losses have been made in the current tax year, these must be set against any gains before applying the CGT allowance. 

For example, if a client has gains of £20,000 and losses of £15,000 in the same tax year, £7,300 of CGT allowance will be wasted (£12,000–£5,000). 

An individual may be forced to dispose of a favoured fund to create the gain needed to use up the CGT allowance. 

Further gains of £7,300 would therefore have to be crystallised to benefit from the full allowance. 

If, however, the losses are brought forward from previous years, not all of those losses have to be used in the current year. In the example, had the £15,000 losses been made in earlier years, only £7,700 would need to be used in conjunction with the £12,300 allowance, enabling the remaining £7,300 of losses to be used to offset gains in future years together with the lower allowance. 

2. Share matching rules

An individual may be forced to dispose of a favoured fund to create the gain needed to use up the CGT allowance. 

Should they wish to repurchase the same fund, they will need to wait 30 days. If they buy back within this period, the gain will be recalculated by substituting the original cost with the repurchase cost, probably resulting in a smaller gain that does not fully utilise the CGT allowance. 

It may not be acceptable for a client to be out of the market for 30 days, so there are some options to counter this. 

They could buy back a similar fund, even switching back to their favoured fund after 30 days have passed. 

A greatly reduced allowance will have a much bigger impact on those who used it year-on-year than someone with a large one-off capital gain. 
PAGE 2 OF 4