Capital gains tax raid to smash ‘modest’ savers – beat Hunt’s deadline and slash your bill | Personal Finance | Finance

The Chancellor’s CGT raid risks ‘paralysing’ the housing market as investors and second homeowners decide against selling up to escape it. Savers making small profits will also be hit, and may be forced to fill out complex tax forms to pay tiny sums.

Before Hunt stood up, analysts were predicting he would increase capital gains tax (CGT) rates by aligning them with income tax bands, which are higher.

Instead, he took a hatchet to the amount that everyone can take tax-free each year before CGT kicks in.

This is currently £12,300 a year, a figure Rishi Sunak has frozen previously frozen until 2026.

Many expected Hunt to extend the freeze to 2028. Instead, he took a far more brutal approach and slashed the allowance to £6,000 from next April and then to £3,000 from April 2024.

In a parallel move, he halved the £2,000 dividend allowance to £1,000 next tax year and just £500 the year after.

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CGT is levied on profits banked when selling assets at a profit, including shares and other investments held outside of a tax-free Isa, as well as paintings, antiques and jewellery, and buy-to-let or holiday properties.

There is no CGT when selling UK government gilts and Premium Bonds, and betting, lottery or pools winnings.

Currently, basic rate taxpayers pay CGT at 10 percent, rising to 20 percent for higher-rate taxpayers.

These rise to 18 percent and 28 percent respectively, when selling an investment property or second home.

These tax bands will continue to apply, but from April they will kick in much sooner.

CGT is an attractive tax to increase from a political point of view, because only 323,000 paid it last year.

Yet there is a downside.

Most CGT comes from a small number of taxpayers who bank large gains, but those who make gains of a few thousands pounds will be hit hardest by Hunt’s move, said Paul Barham, partner at Mazars.

“Cutting CGT allowances will mean that even the most modest of gains could become taxable.”

In another blow, many “smaller” savers hit by the tax will be forced to complete a tax return self-assessment tax return, said Stephen Hughes, financial planner at Charles Stanley. “Potentially, that’s a lot of admin for a small amount of tax for HMRC.”

Hughes said this makes holding investments inside pensions and Isas more attractive, as there is no CGT to pay on gains.

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In practice, Hunt may be disappointed by how much he can raise, because many people can choose when to take capital gains, said Chris Springett, tax partner at Evelyn Partners. “Many could put off a sale to stave off a CGT liability.”

Every adult gets a CGT allowance so married couples and civil partners can reduce their liability by pooling their annual exemptions through an “interspousal transfer”.

They can also shift a potential gain to whichever partner might be exposed to a lower tax band.

If they make disposals before next April, they can still take advantage of this year’s £12,300 CGT exemption, before it is sliced in half.

Many second homeowners and buy-to-let investors who are looking to sell a property now face a higher tax bill on their profits from rising house prices. “The extra cost may be relatively small in absolute terms but this is the latest Treasury move to dent the attractions of property as an investment,” Springett said.

There is a chance we may now see a spike in property sales by people looking to offload assets before April, worsening any house price dip.

In practice, that may not happen.

Property transactions take months and many will struggle to complete by April 6 next year. Also, if vendors are forced to cut the sale price to find a buyer, any CGT saving may be wiped out.

Springett expected the reverse to happen, with a decline in property sales as owners hold off during today’s unfavourable market conditions.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, agreed that Hunt’s CGT raid could discourage sales and may cause parts of the housing market to “seize up” as property supply shrinks.

“If even more potential sellers avoid selling at what they perceive as a loss it could lead to fresh paralysis on top of today’s uncertainty.”

Streeter warned the CGT raid is also penalising entrepreneurs, who will also pay more tax on dividends, which many draw as income.

“However, many have benefited from a huge upswing in share and property values while wage earners have seen their incomes stagnate.

“So, taking a greater slice of investment gains may be fairer than clawing money from pay packets.”

The danger is the combined CGT and dividend tax raid could deter future investment, warned Andy Butcher, chartered financial planner at Raymond James. “It risks dissuading new growth-oriented projects.

If the Chancellor wants to avoid jeopardising the UK’s already slipping position in financial markets, taxation needs to be met with incentives, he said. “For entrepreneurs and businesses, there’s a chance it will smother innovation.

Entrepreneurs’ relief should have been increased as a compromise. “It’s a shame to see nothing of the sort emerge from the red briefcase,” Butcher added