Fight back on tax attack
CHANCELLOR Jeremy Hunt’s tax attack will intensify in April as key exemptions are slashed for the second time at the start of the financial year.
The latest increases will come into force in less than two months.You can fight back to reduce your exposure, but you must act quickly.
Last year, Hunt cut the threshold at which we start paying capital gains tax (CGT) from £12,300 to £6,000. In April, it will fall to just £3,000.
He also cut the amount of tax-free dividend income that investors can generate on shares or investment funds held outside of a tax-free Isa wrapper or pension plan was cut from £2,000 to £1,000. From April 6, it will be halved to £500.
Any dividend income above that will be taxed at 8.75 per cent for basic rate taxpayers. Higher rate taxpayers will pay 33.75 per cent; additional rate taxpayers will pay 39.35 per cent.
The £325,000 inheritance tax threshold will remain frozen until at least 2028, dragging more middleincome families into the net.
Income tax thresholds will be frozen until 2028, snatching more of our earnings as wages rise.
Here is how to fight back.
CGT is charged on profits from selling assets such as a second home, investment property, business, antiques, jewellery, cryptocurrency or shares held outside of an Isa.
It is charged at 10 per cent for basic rate taxpayers or 18 per cent if selling a property (not your home), while higher rate taxpayers pay at 20 per cent or 28 per cent.
If you hold stocks or investment funds outside of an Isa, your gains may be subject to CGT. Yet they will be free of all CGT inside an Isa, so take this chance to switch them into the tax wrapper, said Alice Haine, personal finance analyst at Bestinvest.
Do this by selling them one day and buying them back the next, a process known as “Bed and Isa”, she said.
Any gains may be subject to CGT but if you act before April 6, you can use today’s higher £6,000 CGT allowance to bank more of them tax-free.
Married couples and civil partners can pass assets to each other free of tax, which allows them to double up their CGT allowances and bank £24,600 of CGT-free gains in total.
Use your Isa allowance to take all your income from shares and funds tax-free. So again, Bed and Isa any income-generating investments and buy new shares or investment funds inside your £20,000 allowance.
If you do not fancy investing in shares it is still worth considering putting money into a cash Isa, where all interest is free of tax for life.
Haine warned: “If you don’t use this year’s £20,000 Isa allowance by the deadline, you’ve lost it for good.”
Reduce your exposure to inheritance tax can by making gifts to loved ones before the tax year ends.
Everyone can gift up to £3,000 each year with IHT exemption. You could give someone £3,000 before April 6 and £3,000 afterwards (£6,000 total). Couples could double this to £12,000.
You can make annual IHT-free gifts of up to £250 per person, £5,000 to a child who is getting married, £2,500 to a grandchild getting wed, or £1,000 to a relative or friend.