CGT squeeze forces advisers to refocus tax advice

Cuts to allowances have seen a whopping additional 87,000 taxpayers liable for capital gains tax (CGT) since 2023/24, according to government figures, shooting the tax planning concern right up clients’ – and advisers’ – agenda.

The scale of change in financial planning strategies following continued reductions to CGT thresholds over the past three years is revealed in new research from tax experts Financial Software Limited.

As advisers will know, the CGT annual exempt amount was cut from £12,300 in 2022/23 to £6,000 in 2023/24, and further reduced to £3,000 in 2024/25, increasing the number of people liable for gains on assets like shares or second homes.  

The consequence? The vast majority of advice firms (in a survey of 125) have adjusted their approach to CGT, with just 11% saying they have made no changes.

So what are advisers doing in response?

More than half of advisers (57%) report increasing joint planning between spouses to maximise the use of both individuals’ allowances, making it the most common response to lower thresholds.  

Half (50%) are placing greater emphasis on ensuring clients fully utilise ISA and pension allowances, while 31% are increasing their use of loss-offsetting strategies.

Around six in ten advisers say they are now recommending fewer General Investment Accounts. Other notable shifts include:

• 29% advising clients to defer asset sales

• 19% increasing the use of CGT-efficient investments such as VCTs, EIS and gilts

• 18% encouraging greater use of gifting strategies

Commenting on the findings, Michael Edwards, managing director of Financial Software Limited said: “CGT is no longer a peripheral issue for advisers or their clients. With more individuals drawn into scope, tax planning has moved centre stage.”

Advisers are reworking financial plans and making far greater use of tax-efficient structures, which demands accurate data and robust modelling tools.

CGT planning is inherently complex, of course, so platforms must ensure they provide meaningful support. This helps advisers deliver better outcomes but also supports their obligations under Consumer Duty, helping clients avoid foreseeable harm such as unexpected tax liabilities.

The Timebank is also on hand to support you, with all your paraplanning needs, making sure those CGT calculations are nailed on, as well as every other aspect of suitability. Get in touch with us today for a no obligation chat about how we can help.

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