A recent study we undertook showed that the UK’s Capital Gains Tax bill for private investors has topped £10bn for the first time ever. As readers will know, Capital Gains Tax (CGT) is paid on profits from the sales of shares, buy-to-let property and other assets.

It is thought that one of the reasons for this increase is that many taxpayers are rushing to sell their assets amidst fears over possible increases to CGT. But are these people right to do this and are there other steps you can take to reduce CGT?

With furlough and other COVID-19 expenditure having to be paid for, there is increasing concern from taxpayers that future Budgets might see the Chancellor raise CGT. Last year, an increase in CGT was proposed by an Office for Tax Simplification’s consultation which the Chancellor had commissioned. The recommendation was that CGT rates be increased in line with Income Tax rates and for inherited assets to be liable for both CGT and Inheritance Tax.

Due to concerns that these proposals might come into effect in the March Budget, many individuals are selling assets such as buy to let property, in order to avoid a potentially larger bill in the long run. Reports also suggest that entrepreneurs have recently accelerated sales of their businesses due to the anticipated rise in CGT rates.

With many taxpayers making a sudden decision to sell their assets, it is important that they think about these transactions carefully. Quite often, individuals do not fully understand the tax implications involved, which can result in them paying more tax than is necessary.

Individuals who are concerned about CGT bills, may want to look at other options which can help reduce their future tax liabilities, such as:

  • Buying assets inside a pension wrapper which allows gains to be exempt from CGT
  • ‘Rolling over’ gains made from the sale of an asset into an EIS investment, which defers the CGT bill until the investment is sold
  • Making use of the CGT annual tax-free allowance (£12,300) by spreading the sale of an asset across multiple tax years

Individuals who would like to sell their asset(s) are highly encouraged to seek professional advice first, particularly as rules surrounding CGT can be complex. Making snap decisions can sometimes be detrimental and lead to a higher than necessary tax bill.

Read more from us on this topic in City AM, Sunday Express and eprivateclient: https://www.cityam.com/individuals-rush-to-sell-assets-as-capital-gains-tax-bill-rockets-to-10-1bn/