How advisers can help clients make better use of the shrinking CGT allowance

Another 87,000 people have been pulled into capital gains tax since 2023/24, according to government figures. Cut an allowance by more than three-quarters and, astonishingly, more people end up paying tax. That’s what happens when the annual exempt amount falls from £12,300 to £3,000 in two years: CGT stops being a concern for a relatively narrow group and starts appearing in rather more client reviews.

The annual exempt amount dropped from £12,300 in 2022/23 to £6,000 in 2023/24, before being halved again to £3,000 in 2024/25. More people consequently face tax when disposing of assets such as shares and second homes. A £3,000 exemption can turn routine portfolio housekeeping into tax planning remarkably quickly.

Research from tax specialist Financial Software Limited suggests advice firms have already changed course. Of the 125 advisers surveyed, only 11 per cent said they hadn’t altered their approach to CGT planning. The most common response was greater coordination between spouses, with 57 per cent doing more joint planning to use both partners’ allowances. Half are placing greater emphasis on clients using their ISA and pension allowances in full, while 31 per cent have increased their use of loss-offsetting strategies.

General investment accounts are also losing some of their appeal, with around six in 10 advisers recommending fewer of them. Elsewhere, 29 per cent are advising clients to defer asset sales, 19 per cent are making greater use of CGT-efficient investments such as venture capital trusts, Enterprise Investment Schemes and gilts, and 18 per cent are recommending more gifting strategies.

None of those options is a universal answer. Deferring a sale may simply move the problem into another tax year, while VCTs and EIS investments carry risks extending well beyond their tax treatment. Gifting also requires careful thought about ownership, control and the client’s wider circumstances. A smaller allowance makes these trade-offs more common; it doesn’t make them any less important.

“CGT is no longer a peripheral issue for advisers or their clients. With more individuals drawn into scope, tax planning has moved centre stage,” said Michael Edwards, managing director of Financial Software Limited. He’s right. CGT planning now needs to sit alongside investment strategy rather than arrive as an unpleasant calculation after the disposal has happened.

For advice firms, that means maintaining accurate acquisition costs, modelling disposals properly and checking how each recommendation interacts with the client’s other allowances and overall tax position. Under the Consumer Duty, avoiding foreseeable harm should include trying not to surprise somebody with a tax bill that reasonable planning could have identified. Inevitably, that also means more calculations, more suitability work and less room for casual arithmetic.

The Timebank can provide the paraplanning support behind those recommendations, from technical analysis through to the finished report. We’ll help ensure the CGT figures stack up while you decide whether the strategy does too. With the allowance now at £3,000, there isn’t much margin left for working it out afterwards.