The Spotlight on Capital Gains Tax: What You Need to Know

The future of capital gains tax (CGT) is a hot topic as concerns rise over potential changes under a future Labour government. While Labour leader Keir Starmer has explicitly ruled out raising other taxes, including income tax, VAT, corporation tax, and national insurance, the fate of CGT remains uncertain.

According to reports, Labour Party figures have declined to rule out CGT rises, sparking worries among City figures about the impact on investors and entrepreneurs. CGT is a tax paid on profits made from selling certain assets like shares, businesses, or second properties.

In the 2021-2022 tax year, business owners, investors, and landlords paid a record amount of £16.7 billion in CGT, with the total liability and gains increasing annually. While CGT may not be as significant as other taxes like income tax, it has become a target for political parties looking to raise revenue.

The Conservatives have pledged not to raise CGT, while the Liberal Democrats and the Green Party have proposed increasing the rate to align more closely with income tax rates. Labour’s manifesto does not explicitly mention CGT, leaving room for speculation about potential tax hikes on wealth.

To reduce your CGT bill, experts recommend using your CGT allowance, considering joint ownership with a spouse, offsetting losses from other assets, tracking costs of the asset, contributing more to your pension, and utilizing your ISA allowance.

As the debate over CGT continues, investors and taxpayers are advised to stay informed and consider their financial strategies in light of potential changes to the tax system.