Beware changes to Capital Gains Tax

Press attention on the 2022 Autumn budget was largely fixed upon the cost-of-living crisis, support for energy bills and reversals to income tax policy.


Therefore, it was perhaps easy to overlook the changes to Capital Gains Tax (CGT) introduced for the 2023/24 tax year and beyond. This came in the form of quite drastic cuts to the Annual Exempt Amount (AEA). This is the amount that each individual, executor or Trustee can generate in gains upon the sale of assets before any CGT is paid. Currently every individual has an exempt AEA of £12,300 and for Trustees this is £6,150.


Although not enormously generous this has helped ease the burden of CGT for anyone disposing of assets – most typically shares or property/land. This can be particularly helpful where a married couple utilise both of their allowances with jointly held property.


However, for the 2023/24 year these allowances will be cut to £6,000 for individuals and executors and a paltry £3,000 for Trustees. For 2024/2025 the amount for individuals will be fixed at £3,000 but for Trustees the amount will fall further to £1,500 going forward.


Where assets need to be sold this will obviously result in the payment of a higher amount of CGT than previously. As such, careful thought should be applied to the structure of any sales and if possible, it would be prudent to exercise any such sale within the 2022/23 tax year.


Perhaps the biggest impact may be seen within Trusts which hold investments ‘pregnant’ with gains. Historically fund managers have been able to manage asset sales on portfolios to raise capital without incurring charges to CGT. This will now become much more difficult to manage – particularly for trusts where the cost of living crisis is precipitating the need to raise funds for struggling beneficiaries (perhaps to augment income). Going forward, it is possible that charges to CGT will become the normal “cost” associated with the management of trusts.


If you would like to discuss anything mentioned in this article please contact a member of the Whitehead Monckton TEP Team.