Sunak launches new estate tax and capital gains tax in April – do it NOW | Personal finance | Finance
Inheritance and capital gains tax bills are set to soar as Sunak scrambles to find ways to replenish treasury coffers. Tax experts are urging people to make full use of this year’s IHT and CGT allowances, before the April 5 deadline. It’s now less than a month away.
In his budget last March, Sunak froze the zero-rate threshold for inheritance tax at £325,000 for five years, until at least tax year 2025/26.
It also froze the zero-rate residency bracket at £175,000, also for five years. This applies to families who pass on their principal residence to direct descendants such as children and grandchildren.
At the same time, the Chancellor also froze the capital gains tax allowance at £12,300, again, until at least 2025/26.
This is the amount of capital gains a UK adult can make each year, before having to pay CGT on their profits.
The freeze will catch more and more families in the tax net each year as house and stock prices rise, but the tax thresholds remain the same. It’s as if Sunak launched a new tax raid every year.
IHT is charged at 40% on all assets that exceed the threshold, including the value of your home.
CGT levels are more complex. Currently, basic rate taxpayers pay CGT at 10% on annual earnings over £12,300, while higher rate taxpayers pay 20%.
These increase to 18% and 28% respectively when selling an investment property or a second home.
Both taxes become more lucrative for HM Revenue & Customs. HMRC collected a record £6bn in 2021, up £600m.
In 2020/21, the tax authorities took £10.61bn from CGT, up £800m from the previous tax year.
READ MORE: £50,000 inheritance tax shock as Sunak raid escalates – home is in jeopardy
Families can reduce IHT exposure by making cash gifts to loved ones each tax year, says Becky O’Connor, head of pensions and savings at Interactive Investor.
“Adults can offer a maximum of £3,000 a year with no IHT to pay, so couples can combine their allowances and offer £6,000.”
You can mop up last year’s unused allowance, so couples can donate £12,000 in total.
“Additionally, they can also make small gifts of £250 to as many people as they wish, provided the recipient has not benefited from the £3,000 limit,” says O’Connor.
You can also reduce your exposure to IHT by giving gifts to your wedding loved ones or donating to charity.
Other donations are known as “potentially exempt transfers” and are only fully exempt from IHT if you live seven years longer.
Currently, you can make £12,300 in profit a year before paying CGT when selling assets such as stocks, property, paintings, antiques and jewellery.
O’Connor suggested spreading transfers over multiple tax years, or doing spousal or civil partner transfers, which are exempt from CGT.
Another option is to offset losses with gains. Do your research or seek financial advice.