CGT, Bed & Breakfast and the Annual Allowance
Discussion
'Tis the season to start thinking about making sure you've used your CGT allowance before 5 April 2024.
This year the allowance is reduced to tax free gains of £6,000
In 2024/25 it reduces even further to £3,000
Surely the allowance is now so small it's not worth bothering with, given that CGT rates are pretty low at 10% or 20% and the 30-day Bed & Breakfast rule makes it all a bit of a pain?
Well no, it's still worth making sure you use the annual tax free allowance.
Firstly, you can side-step any market risk that arises from the 30-day rule by either switching investments between spouses (you sell, they buy and vice versa) or by switching investments between basic taxed account and ISA account.
Secondly, beware future taxes! What does that mean?
Let's say you have an investment worth £12,000 that you bought for £6,000 a few years back.
You sell the whole lot for £12k but perhaps save only £600 of tax (10% of the £6k gain) - it hardly seems worth it.
BUT, by crystallising that £6k gain you take the whole £6,000 of gains out of the CGT system for ever.
So what?
Let's imagine Labour win the next election and put CGT back to a flat rate of 30%
If you try to sell your £12k of investments with a £6k gain in future you could pay £1,800 of tax, a much bigger chunk.
The CGT annual allowance may seem small but keep grinding away at it every year. Over time, you can shelter a decent chunk of gains from the tax system.
This year the allowance is reduced to tax free gains of £6,000
In 2024/25 it reduces even further to £3,000
Surely the allowance is now so small it's not worth bothering with, given that CGT rates are pretty low at 10% or 20% and the 30-day Bed & Breakfast rule makes it all a bit of a pain?
Well no, it's still worth making sure you use the annual tax free allowance.
Firstly, you can side-step any market risk that arises from the 30-day rule by either switching investments between spouses (you sell, they buy and vice versa) or by switching investments between basic taxed account and ISA account.
Secondly, beware future taxes! What does that mean?
Let's say you have an investment worth £12,000 that you bought for £6,000 a few years back.
You sell the whole lot for £12k but perhaps save only £600 of tax (10% of the £6k gain) - it hardly seems worth it.
BUT, by crystallising that £6k gain you take the whole £6,000 of gains out of the CGT system for ever.
So what?
Let's imagine Labour win the next election and put CGT back to a flat rate of 30%
If you try to sell your £12k of investments with a £6k gain in future you could pay £1,800 of tax, a much bigger chunk.
The CGT annual allowance may seem small but keep grinding away at it every year. Over time, you can shelter a decent chunk of gains from the tax system.
CGT on Residential Properties is currently 18% and 28%.
In years gone by there was no particular CGT rate at all. A person paid CGT at whatever their highest rate of Income Tax was.
But they had the personal CGT allowance plus an adjustment for inflation, called Indexation (or, before that, making use of the Retail Price Index - RPI).
In years gone by there was no particular CGT rate at all. A person paid CGT at whatever their highest rate of Income Tax was.
But they had the personal CGT allowance plus an adjustment for inflation, called Indexation (or, before that, making use of the Retail Price Index - RPI).
Edited by Eric Mc on Saturday 27th January 15:22
With the spouse element you mentioned, for example I assume that there’s no clever dick move on Vanguard if we both hold accounts for me to send funds to the account in her name without waiting for withdrawal? I guess I have to sell my GIA into cash and then withdraw and fund her account (or just use cash from elsewhere to be quicker) once it’s cleared..?
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