Five ways to beat the CGT Budget changes

The Autumn Budget was always going to be painful for investors. Labour pledged in its election manifesto not to raise taxes on working people and, with the threat of “difficult decisions”, so-called wealth taxes were always going to be in the chancellor’s firing line.

Although investors who pay the higher and additional rate of tax, in particular, will no doubt be relieved that Rachel Reeves opted not to align capital gains tax (CGT) with income tax rates, she did still increase rates.

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The lower rate – for those who still pay basic rate once the gain is taken into account – will rise from 10% to 18%, while the higher rate (for higher and additional rate taxpayers) will jump from 20% to 24%.

The increases mean that the rate payable when investors sell shares or managed funds (and other chargeable assets) will be the same as the rates paid on the sale of residential property (other than the main home).

Rather than being introduced at the start of the new tax year, the hike took immediate effect on 30 October, giving investors no opportunity to sell assets and take advantage of lower rates in the coming months.

Following a round of swingeing cuts to CGT allowance (from £12,300 in 2022-23 to £6,000 in 2023-24 before settling at £3,000 in 2024-25), the increased rates mean those selling assets will be facing even bigger tax bills.

According to government figures, the move is expected to boost CGT receipts by £90 million in the current tax year and £1.44 billion in 2025-26, affecting some 264,000 individuals by that point.

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Earlier this year, prior to the Budget, the Office for Budget Responsibility (OBR)had forecast that CGT would raise £15.2 billion in the current tax year –1.3% of total tax receipts.

The increases will invariably be frustrating for investors, but there are still plenty of above-board ways to mitigate a CGT bill. But to make the most of them, investors will need to be organised.

1) Make the most of ISAs and pensions

Ongoing changes to CGT have really shone a light on the value of holding investments in wrappers that protect your wealth from tax such as individual savings accounts (ISA) and pensions, rather than general investment accounts (GIA).

Each year it’s possible to save £20,000 a year, tax-free into ISAs, meaning that investors using the stocks and shares type won’t have to pay any tax on either their dividends or capital gains.

Alternatively, if you can afford to lock your money away for longer, it’s possible to pay 100% of your earnings, up to £60,000, into a pension. In addition to sheltering your money from tax as it grows, you’ll also get tax relief on your contributions, equivalent to your highest rate of income tax. You’ll only need to pay income tax at the other end, when you start taking money out of your pot. Money held in defined contribution (DC) pensions, such as self-invested personal pensions (SIPP), can be accessed from the age of 55 (rising to 57 in 2028).

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If you already have sizeable pension savings, it’s worth bearing in mind that, as of April 2027, any funds that remain in your pot when you die, can no longer be passed on to beneficiaries free of inheritance tax (IHT). The rule that allows pensions to be passed on to beneficiaries free of income tax if you die before the age of 75, does, however, remains unchanged.

2) Take advantage of a ‘Bed & ISA’ or ‘Bed & SIPP’

If you’ve got a sizeable amount of money invested in GIAs, that don’t offer any shelter from tax, it’s worth moving them into a more tax-friendly environment if you can.

However, if your GIA or trading account is on the same platform as an ISA or SIPP, and you haven’t exhausted either allowance, you can start taking advantage of either “Bed & ISA” or “Bed & SIPP” rules. These enable you to sell investments in a general investment account and immediately re-buy them within an ISA or SIPP. So long as the profit your realise doesn’t cause you to breach your annual CGT allowance, there will be no tax to pay and your money will be protected from tax going forwards.

Moving a larger balance into ISAs or pensions without incurring any CGT is now a slower process than it was, thanks to repeated cuts to the allowance. However, over the years it can still be a helpful way of reducing a future tax bill.

3) Give money to your spouse

Love and companionship aside, a big perk of marriage (or a civil partnership) is that it comes with a fair few tax breaks. That means those who are able to plan their finances together, can make significant tax savings.

A big one is that married couples and civil partners are able to transfer assets between each other, without giving rise to any CGT.

This enables couples to spread their wealth between them and take advantage of each individual’s CGT allowance. If, CGT is unavoidable, there may also be benefits in a spouse transferring assets to their partner if it means that the tax would be charged at the lower rate.

Married couples can also reduce potential tax bills by ensuring that they are making use of both sets of ISA and pension allowances. Between them they can shelter £40,000 a year in ISAs and up to £120,000 in pensions.

It’s also worth noting that if your partner (it doesn’t matter in this case whether you are married or not) doesn’t earn or pay tax, you can still pay into a pension on their behalf. Each year you can pay in up to £2,880, which will be boosted to £3,600 after basic-rate tax relief has been applied.

However, it’s important to note that if you transfer any money to a spouse or partner, it will legally become their money – you cannot ask for it back at a later point.

4) Make the most of your annual allowance

Although CGT has been dubbed a wealth tax, reductions to the annual allowance mean it’s not the preserve of the rich – over the years even investors saving modest sums could be caught out. The £3,000 allowance applies only in the year you sell your investment, not for each year that the investment has been held.

The way around this is to use your annual allowance each year. By selling gains up to its value - currently £3,000 - you will reduce the amount of CGT you will eventually need to pay.

The 30-day rule means you can’t realise gains and rebuy the same investments. However, if you want to remain invested, you can always re-invest the money in an equivalent holding.

Alternatively, you could use it as an opportunity to rebalance your portfolio or invest in something different – which could be helpful if your risk profile has changed.

5) Finally…don’t forget you can offset losses

While nobody will want to brag about their investment losses, they could do you a favour further down the line.

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That’s because CGT rules allow you to offset any losses against your capital gains to reduce the amount of tax you need to pay. And you’re not confined to losses from the current tax year either – it’s possible to use losses from previous years, so long as they haven’t been used in this way before. You just need to ensure you report losses to HMRC within four years of their disposal.