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Writer's pictureNewbold Wealth Management Ltd

September 2023 Client Newsletter

Capital Gains Tax: A Wealth Tax By Another Name?


Capital gains tax (CGT) has traditionally been a tax that most people could ignore. If you happened to be caught within its grasp, you could consider yourself in a relatively wealthy minority. However, as has happened with higher rate tax, the reach of CGT has been growing and will extend further over the next few years. It is no longer a tax you can ignore.


Source: HMRC, OBR


In the summer, HMRC issued their annual update on CGT receipts. The latest figures relate to 2021/22 because CGT liabilities are generally – other than for residential property – reported in the January of the tax year after the gains are realised. At £16.7bn, total CGT liabilities were up 15.2% on the previous year and almost double the level of 2015/16. The number of individual taxpayers also jumped by over 20% between 2020/21 and 2021/22.


The rise in CGT liabilities over recent years has its roots in three main areas:


  • The Government’s decision in the March 2020 Budget to replace Entrepreneur’s Relief covering the first £10m of gains with Business Assets Disposal Relief, which covered only the first £1m.

  • The freezing of the CGT annual exempt amount at its 2020/21 level despite high inflation; and

  • Pre-emptive action by some taxpayers who wrongly feared an increase in tax rates in response to a CGT review commissioned by Rishi Sunak (as Chancellor) in July 2020.

  • In the Autumn Statement 2022, the Chancellor gave the CGT ratchet another three turns:

  • The annual exempt amount was reduced from £12,300 in 2022/23 to £6,000 in the current tax year and just £3,000 from 2024/25.

  • The provision to index-link the exempt amount unless the Chancellor decided otherwise was scrapped.

  • The higher rate income tax threshold was frozen at £50,270 through to 5 April 2028. This has an impact on CGT because it means more higher rate taxpayers for whom the rate of CGT is 20% (28% for residential property), against the 10%/18% basic rate taxpayers suffer.

This trio of measures could drag you into paying CGT or at least mean you have to pay the tax more attention than you have in the past. At the time of the 2022 Autumn Statement, HMRC estimated that around 500,000 individuals and trusts could be affected, increasing to 570,000 in 2024/25. Of this group, HMRC reckoned that 260,000 individuals and trusts will be brought into the scope of the tax for the first time.


What can you do?

Next tax year’s £3,000 annual exempt amount means that you should start planning now if you have investments that could be liable to CGT. The strategies to consider include:


  • Maximise the use of ISAs, which are free of CGT. This tax advantage once seemed a minor benefit, but that has changed in the new CGT world. If you have cash ISAs currently, it might be worth turning them into stocks and shares ISAs.

  • Do not waste your annual exemption. It has been many years since it was possible to sell a holding one day and buy it back the next to crystallise the necessary gain, but similar opportunities still exist.

  • If you are married or in a civil partnership, think about who should own what: you each have your own annual exemption, meaning in this tax year you could realise gains of £12,000 between you with no CGT bill. Similarly, your partner may be a basic rate taxpayer, subject to 10% CGT while you have to pay 20%.

  • Consider carefully how you invest. For example, there is no CGT within pension arrangements, but there will normally be income tax on 75% of your retirement benefits.

Very Interesting…


Up until mid-June 2022, the Bank of England had kept its Bank (Base) Rate at below 1% for a period of over 13 years. Such a prolonged spell of ultra-low interest rates means that most of the population much under the age of 35 cannot remember a previous time when interest rates were other than close to zero. The sharp rise in rates has thus been something of a learning curve for many, including a generation of investment managers.


Source: Bank of England


What have we learned from rising interest rates?


One lesson is that turning points are almost impossible to predict. When the Bank of England first cut its rate to 0.5% in March 2009, the expectation was that it was a temporary measure in response to the global financial crisis and might last a year or so. Nobody foresaw that a decade later the rate would be just 0.25% higher and heading towards a new low of 0.1% in March 2020.


A lesson relearned has been that Bank of England increases in interest rates reach borrowers with variable rate loans quicker than they do depositors with instant access accounts. Throughout the period of rising rates, banks and building societies have grabbed the opportunity to widen their margins. The lenders’ actions have prompted criticism from the Chancellor and scrutiny from the Financial Conduct Authority (FCA). However, the Government has quietly widened some of its own margins. At the time of writing (early September 2023) the National Savings & Investment Direct ISA was still paying only 3.0% - more than 2% below the Bank of England’s Bank Rate.


Another lesson which will be new to all but the grey (and no-) hairs is that high interest rates offer little or no protection to capital in times of inflation. This was true in the 1970s and is equally true today, but is easy to overlook if both high inflation and high interest rates are unfamiliar backdrops. For example, go back to August 2020, when inflation was 0.2% and the Bank Rate was 0.1%. If you were earning Bank Rate on your deposit, then your interest earnings were only 0.1% behind inflation. Three years later, the corresponding interest rate was a much more attractive 5.25%, but inflation (for July 2023) was 6.8%, making the losing gap 1.55%.


There is a corollary to the widening rates differential in another lesson: your cash holdings need your attention. This was arguably less important when interest rates were on the floor. Now they are not, leaving too much cash in a current account or High Street bank deposit account could be costing you a meaningful amount of income. No wonder many banks have argued against informing their customers of alternative, higher earning accounts…


And then there is the question of tax…


Tax on interest disappeared for most people on 6 April 2016, when the personal savings allowance (PSA) was introduced. The basis of the PSA has not changed since then:


  • If you are a UK basic rate taxpayer, then the first £1,000 of interest is tax-free;

  • If you are a UK higher rate taxpayer, then the first £500 of interest is tax-free; but

  • Your PSA is nil If you are an additional rate taxpayer – and there are many more top rate taxpayers in 2023/24 because of the near £25,000 cut in the additional rate threshold.

  • Just to complicate matters, the PSA is not a true allowance, but a nil rate tax band.

When rates were 1% or less, for nearly all taxpayers, a substantial amount of capital was required to generate enough interest to exceed the PSA. Now, if you are a higher rate taxpayer, £10,000 in an account with a competitive rate could mean you have tax to pay (£20,000 if you pay basic rate). This could be both a surprise and a complication. It is some years since 20% tax was automatically deducted from interest, so any tax payable will be at the full UK income tax rate (Scottish income tax rates do not apply to savings income). Banks and building societies are required to inform HMRC about how much interest they pay to individual taxpayers, so any tax bill will eventually reach you, even if you are not required to complete a tax return.


A New University Year With An Old Issue…


Thenew academic year is beginning, with important changes for some new entrants to the system. However, there are also some familiar aspects that have not changed for students.


The new student loan system in England


Student finance is a devolved responsibility, meaning that each of the UK’s four constituents adopt a different approach to how university costs are covered. In England, with by far the largest number of students, the system has changed, but only for those starting their courses this autumn. To date, Scotland, Wales and Northern Ireland have not made any similar reforms, but over time costs may force them to move in a similar direction.

The two main changes to English student finance are:


  • The maximum repayment period before any outstanding student loan is written off has been extended to 40 years (from the April after ending the course). The previous generation of students faced a maximum 30 years.

  • Once repayment begins, it will be at the rate of 9% of income above £25,000. This threshold will be frozen until April 2017, after which inflation-linked increases are planned…but plans do not always become reality. The threshold for existing graduates was meant to be linked to earnings growth (usually higher than price inflation) but has been fixed at £27,295 sine April 2021.

The combination of the extra ten years of repayment period and a lower income threshold that grows more slowly in the longer term, is projected to make a significant difference to how much student debt is eventually written off by the Government. One estimate is that the proportion of loans that will be repaid in full will rise to 52% from the current 19% and the cost of student finance to the Treasury will more than halve.


The impact on graduates in the new system is subtle. Compared with their immediate predecessors:

  • They will begin graduate life making marginally greater loan repayments – probably no more than about £20 a month. That gap will widen over time if – and it is a big if – threshold increases are inflation and earnings growth linked.

  • Much more significant is that any outstanding loan will not be written off when they reach their early 50s – there will be another decade to run, almost through to retirement.

Old fashioned inflation and modern interest


Interest on student debt has traditionally been linked to inflation, as measured by the March RPI each year. The Government has generally abandoned the use of RPI, which is no longer an official statistic, but continues to apply it where the Treasury can benefit (currently RPI is running at 9.0%, 2.2% higher than CPI). The maximum interest rate for students in the new loan scheme will be RPI, whereas the existing scheme has a sliding scale of interest that can reach RPI +3%. In both instances, there is an override which puts a market-related cap on the interest rate charged if commercial rates are lower than the RPI-linked charge.


From 1 September 2023 to 30 November 2023, that cap is 7.3%. The relevant RPI (for March 2023) was an eye-watering 13.5%, which implied interest for existing graduates could have been as high as 16.5%. At current interest rate levels, many graduates will see their loans increasing despite their supposed repayments. For example, a graduate in England with student debt of £40,000 will need to be making repayments of just over £243 a month simply to cover 7.3% interest. On the current £27,295 threshold that implies income of close to £60,000 a year.


The need to plan and review


Under the previous loan scheme, about four out of five graduates are projected to see their outstanding loans written off. That has meant that paying off part of the loan early or even not taking the loan at all was potentially an unwise choice. In effect, for most graduates, student loan repayment has been a de facto 9% graduate tax, payable for 30 years.


The new loan scheme is projected to lead to about half of students repaying their loan before the 40 years write off point arrives. If the odds on clearing the debt are evens, that makes any decision on early repayment (or not taking loans) more difficult. If the debt is not going to be written off, the focus falls on the interest rate charged.


Similar issues arise for student loans elsewhere in the UK, as the broad loan structures are much the same.


Intestacy: Something That Should Not Be Forgettable


Half of UK adults do not have a will, according to research undertaken earlier this year. More surprisingly, even among those aged 55 and over, a third have not made a will. If you fall into the no-will category, then what happens to your estate will be governed by the intestacy laws, which are different for Scotland and Northern Ireland from those applying in England & Wales. These laws may not distribute your estate in the way you – or your potential beneficiaries – would expect.


A sad saga of intestacy rules in England & Wales


The rules for intestacy in England & Wales, like those in other parts of the UK, specify cash amounts for a surviving spouse or civil partner if the deceased leaves children or other surviving issue (e.g. grandchildren). Unlike the Scottish and Northern Irish versions, the English and Welsh intestacy rules have a legislative mechanism to increase the cash amount if prices have risen above 15% since the previous adjustment. At least, that is the theory.


In practice the law requires the Lord Chancellor to set the necessary legislation in motion within three weeks of the CPI increase crossing the 15% threshold. This should have meant that there was a statutory order implementing an increase in early December 2022. Somehow the Lord Chancellor and Ministry of Justice overlooked this requirement, and the necessary change did not take place until 26 July 2023, by which time the amount was raised by over 19%.


A surviving spouse or civil partner is now entitled to the first £322,000 of the estate (previously £270,000) plus half of any balance where there are surviving children/issue. However, there has been no adjustment for deaths that occurred during the seven-months overlook period.

October and Tax


October is an important month in the tax calendar:



  • If you still file a paper self-assessment return, then, as a rule, you need to do so by 31 October. HMRC has not automatically issued paper returns for the 2022/23 tax year. If you do not want to file online, then you need to request an SA100 form from HMRC (telephone 0300 200 3610).

Miss either of these dates and you could face a penalty, even if it transpires you have no tax to pay.


Footnote: November and Tax


The Treasury has confirmed that the Autumn Statement will be on 22 November. No major announcements are expected, but that might change.






Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate will, tax or benefit advice. This newsletter is provided strictly for general consideration only and is based on our understanding current law and HM Revenue & Customs practice as at 18 September 2023. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.



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