
By Jyoti Onthriar ATT, Tax Associate Director
The Autumn Budget delivered a blow to investors, as the Government unveiled immediate hikes in Capital Gains Tax (CGT) rates.
CGT rates jumped from 10 per cent to 18 per cent for basic-rate taxpayers and from 20 per cent to 24 per cent for higher-rate taxpayers.
Meanwhile, Business Asset Disposal Relief (BADR), a cornerstone tax benefit for business owners, will see its rate climb from 10 per cent to 14 per cent as of 6 April 2025, with a further increase to 18 per cent slated for 2026.
In this challenging tax environment, tax wrappers emerge as a powerful tool to safeguard your wealth from unnecessary erosion.
These investment structures enable you to grow and manage your assets while reducing your exposure to CGT.
What are tax wrappers?
Tax wrappers are investment vehicles designed to offer tax advantages, either by deferring or eliminating tax liabilities.
Some wrappers completely exempt capital gains from taxation, while others allow you to postpone tax payments, softening the immediate impact of rising rates.
With CGT rates now at higher levels, using these wrappers can help investors and business owners minimise, or even eliminate their tax burdens.
How tax wrappers can counteract the CGT hike
The increased CGT rates mean that a larger portion of your investment returns will be taxed when you sell assets like property, shares, or business interests.
However, by strategically utilising tax wrappers, you can shield your gains from these higher rates.
Individual Savings Accounts (ISAs) – Tax-free growth and withdrawals
ISAs remain one of the most straightforward and effective tax wrappers available.
Any capital gains generated within an ISA are entirely tax-free, ensuring that the rising CGT rates won’t affect your investments.
Stocks & Shares ISAs, in particular, provide a hassle-free way to invest without worrying about CGT, making them a must-have in any tax-efficient portfolio.
Pensions
Pensions, including Self-Invested Personal Pensions (SIPPs), offer tax relief on contributions and allow investments to grow free from CGT.
Although withdrawals are taxed at your marginal rate, deferring taxation until retirement when income is typically lower, makes pensions an excellent option for long-term wealth management.
Investment bonds – Deferring CGT liability
Investment bonds enable you to defer CGT until you make withdrawals, which can be particularly advantageous for those looking to avoid the new higher rates.
Offshore bonds, depending on the jurisdiction, may offer additional tax benefits.
Business Asset Disposal Relief
With BADR rates set to rise from 10 per cent to 14 per cent in April 2025 and then to 18 per cent in 2026, business owners should reassess their exit plans.
If you are considering selling your business or shares, acting sooner rather than later could help you secure the current, lower tax rates.
Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs)
For those willing to invest in historically high-risk investments, EIS, SEIS and VCTs offer substantial tax benefits.
EIS investments provide CGT deferral relief and SEIS investments offer CGT reinvestment relief (fully relieving gains up to the value of 50 per cent of the SEIS investment).
EIS, SEIS and VCT investments all deliver CGT-free growth and also have Income Tax advantages, with EIS and SEIS investments giving relief against Income Tax and VCTs generating tax-free dividends.
These options allow you to reinvest capital gains strategically while mitigating tax liabilities, but many fall foul of the complex requirements of the reliefs, so it is recommended to seek professional advice.
Maximising Your CGT allowance
Although the annual CGT exemption has been reduced in recent years, it still exists.
Spreading asset disposals over multiple tax years or transferring assets between spouses to utilise two allowances can help reduce your CGT exposure.
If you would like to explore how tax wrappers can help you navigate the impact of rising CGT rates on your investments, reach out to our team for personalised advice.