The impact in future years
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.
With only £3,000 of tax-free gains available from April 2024, common tasks such as rebalancing of portfolios or extracting capital to fund Isa subscriptions will more frequently result in CGT becoming payable.
Managing gains within the annual exemption each year can be both time consuming and costly.
But with a maximum tax saving of £600 from a £3,000 exemption, is the exercise still worth it?
For a higher rate taxpayer with a portfolio of £250,000 that is still effectively the equivalent of a 24 basis point reduction. So there may still be value in it, especially if the processes can be automated – as it can be on some platforms, such as Abrdn Wrap – to eliminate a significant slice of the time and costs involved.
If total taxable gains exceed the CGT annual allowance, they must be reported via self-assessment and tax paid by January 31 in the tax year following the year the gain was made.
If total taxable gains are reduced to less than the annual exemption by losses, meaning no tax is due, self-assessment must normally be completed to claim and use the losses.
Alternatively, if a client is eligible, tax can be reported and paid using the ‘real time’ CGT Service by December 31 following the end of the tax year of the disposal.
The exception to the above deadlines is where gains arise from the sale of residential property, in which case the gains must be reported and tax paid within 60 days of the sale.
However, where gains are made on the sale of residential property in the same year as other gains, the CGT allowance can be used against the residential property gains first, which benefits the taxpayer as these will be taxed at the higher CGT rates of 18 per cent and 28 per cent.
Even if there is no tax to pay, those who do not routinely complete a self-assessment return will still need to report their gains to HMRC if the sale proceeds are more than four times the annual allowance.
This year, the four times limit is £49,200, but from next year this will become a fixed amount of £50,000. It is also likely that the cuts to the dividend allowance over the next two years to £1,000 and then £500 will mean that more individuals will have to register for self-assessment anyway.
